UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA ... · Amend. Compl. ¶ 45. Additionally,...

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

CIVIL ACTION NO. 8:20-cv-325-T-35AEP

SECURITIES AND EXCHANGE COMMISSION, ) ) Plaintiff, ) ) v. ) ) BRIAN DAVISON, et al., ) ) Defendants, and Relief )

Defendants. ) ______________________________________________________)

BARRY M. RYBICKI’S RESPONSE TO ORDER TO SHOW CAUSE

I. INTRODUCTION

Defendant Barry M. Rybicki, by and through the undersigned, respectfully submits the

following Response to Order to Show Cause. This Court should deny the pending Motion for

Preliminary Injunction and reconsider its orders granting the Commission’s emergency ex parte

motions for appointment of receiver and for temporary restraining order, asset freeze, and other

injunctive relief as they relate to Mr. Rybicki. For the reasons set forth below, the Commission

is not likely to succeed on the merits in its claims against Mr. Rybicki, who relied upon bad

advice of counsel. Moreover, as the evidence shows, Mr. Rybicki immediately took steps to

cease any improper conduct as soon as he learned that the advice upon which he relied was

faulty, and thus poses no danger of repeated conduct.

II. MEMORANDUM OF LAW

A preliminary injunction is “an extraordinary and drastic remedy not to be granted unless

the movant clearly established the ‘burden of persuasion’” as to each of the four prerequisites.

Case 8:20-cv-00325-MSS-AEP Document 152 Filed 07/24/20 Page 1 of 22 PageID 3166

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McDonald’s Corp. v. Robertson, 147 F.3d 1301, 1306 (11th Cir. 1998). To obtain a preliminary

injunction, the SEC must first establish, as a threshold matter, that there have been violations of

the securities laws. SEC v. Telecom Marketing, Inc., 888 F.Supp. 1160, 1166 (N.D.Ga.1995). In

analyzing the need for injunctive relief, courts must then focus on whether there is a reasonable

likelihood that the defendant, if not enjoined, will again engage in the illegal conduct. SEC v.

Blatt, 583 F.2d 1325, 1334 (5th Cir.1978). Factors to be considered are the degree of scienter

involved, the isolated or recurrent nature of the infraction, the sincerity of the defendant’s

assurances against future violations, and the likelihood, based on the defendant’s occupation, that

future violations might occur. SEC v. Bonastia, 614 F.2d 908, 912 (3rd Cir.1980). In its

showing of a defendant’s reasonable likelihood of future violations of securities laws, it is not

enough for the SEC to show mere past violations. Rather, the SEC must move beyond that and

offer positive proof of the likelihood of further violations in the future. SEC v. Warner, 674 F.

Supp. 841, 844 (S.D. Fla. 1987). Moreover, the more onerous the injunction sought by the

Commission, the more severe its burden. See SEC v. Compania Internacional Financiera S.A.,

No. 11 CIV 4904, 2011 WL 3251813, *7 (S.D.N.Y. July 29, 2011) (“Like any litigant, the

Commission [is] obliged to make a more persuasive showing of its entitlement to a preliminary

injunction the more onerous are the burdens of the injunction it seeks.”). As demonstrated

below, the Commission is not entitled to a preliminary injunction here. First, even if the

Commission could demonstrate a substantial likelihood of success on the merits, it has not

presented and cannot offer positive proof that of a reasonable likelihood Mr. Rybicki will

commit future violations. Absent this evidence, a preliminary injunction cannot be entered

against him. Warner, 674 F. Supp. at 844.


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A. The Commission Cannot Show a Substantial Likelihood of Success on the Merits

To prevail on the relief sought, the Commission must demonstrate a substantial

likelihood of success that Mr. Rybicki violated the registration and antifraud provisions of the

securities laws cited in the Commission’s ex parte motion. See Pl. Mot. for TRO (DE 4) at 22-

35.

As presented, the Commission’s brief and supporting exhibits do not demonstrate any

likelihood of success despite the Commission’s statement that it has provided a “more than an

adequate basis to make a threshold finding” of violations. See Pl. Mot. at 22. The current record

does not support the Commission’s allegations that EquiAlt is a Ponzi scheme. Instead, the

record, as crafted by the Commission and rebutted by this brief, consists exclusively of

conclusory allegations and inaccurate interpretations of evidence. These allegations and

interpretations serve as central pillars to the Commission’s case against EquiAlt, and yet the

Commission made no effort to provide specific citations to the underlying support. Indeed, the

evidence obtained by Commission prior to filing undermines the Ponzi scheme allegation.

The Commission’s allegations regarding Mr. Rybicki’s role in EquiAlt fare no better.

The Commission’s allegations are either unsupported by evidence or contradicted by the

testimony they obtained from Mr. Davison and fail to take into account that Mr. Rybicki acted

pursuant to legal advice provided by counsel. There is a reason that the Receiver in this case took

the highly unusual step of moving this Court, even before the hearing on the Preliminary

Injunction, for an order appointing outside counsel to investigate and pursue claims against law

firms that provided services to EquiAlt. Rec’r Mot. for Leave to Appoint Counsel (DE 121).


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B. The Commission’s Ponzi Scheme Analysis is Flawed

The Commission’s first allegation of fraud is that EquiAlt is a Ponzi scheme. Amended

Complaint (DE 138), ¶ 2 (“[w]ithout sufficient revenues to pay the money owed to investors, the

Defendants, in classic Ponzi scheme fashion, resorted to using new investor money to pay the

returns promised to existing investors.”) The Ponzi scheme, according to the Commission,

operated by “paying investors their monthly interest payments for the debentures by raising and

using new investor funds to pay old investors.” Id. at ¶48. However, the Commission’s

allegations that EquiAlt was operated as a Ponzi scheme are flawed.

The SEC’s allegations plainly contradict its assertions that the Defendants operated

EquiAlt as a Ponzi scheme. Amend. Compl. ¶48. The Eleventh Circuit has described a Ponzi

scheme as a “phony investment plan in which monies paid by later investors are used to pay

artificially high returns to the initial investors, with the goal of attracting more investors.”

United States v. Silvestri, 409 F.3d 1311, 1317 n.6 (11th Cir. 2005). Black’s Law Dictionary

defines a Ponzi scheme as:

A fraudulent investment scheme in which money contributed by later investors generates artificially high dividends for the original investors, whose example attracts even larger investments. Money from the new investors is used directly to repay or pay interest to old investors, usually without any operation or revenue- producing activity other than the continual raising of new funds. This scheme takes its name from Charles Ponzi, who in the later 1920s was convicted for fraudulent schemes he conducted in Boston.

Black’s Law Dictionary (7th ed.1999) at 1180 (emphasis added).

However, instead of a “phony investment plan” “without any operation or revenue

producing activity,” the Commission’s allegations establish that EquiAlt’s and Mr. Davison’s

use of investor proceeds generated real estate and cash holdings totaling at least $145 million.

Amend. Compl. ¶ 45. Additionally, the Commission even concedes that “in December 2016

non-investor revenues for the Funds for that month were $1.6 million,” demonstrating that the


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investor proceeds were generating real estate and cash holdings. Id. at ¶ 49. Moreover, the

Commission’s $145 million estimate of EquiAlt’s real estate and cash holdings does not include

those of Fund III, Amend. Compl. ¶ 6, which stopped raising investor proceeds in December

2015 and is now closed, Amend. Compl. ¶ 15. The Commission alleges that Funds I, II, III, and

EA SIP raised $170 million but “only” have real estate and cash holdings totaling $145 million;

however, they fail to account for the real estate and cash holdings Fund III generated before it

closed.

Given the Commission’s allegations of a Ponzi scheme, this omission is critical. Even

excluding the assets in Fund III, EquiAlt still held cash and real estate valued at more than 85%

percent of the total deposited by investors ($145/170 million), and bears little resemblance to the

“phony investment plan” contemplated by the Eleventh Circuit in Silvestri, or the investment

“without any operation or revenue producing activity” described by Black’s Law Dictionary.

This is not the only instance the Commission fails to properly characterize the true nature

of the Funds. The Commission alleges that by December 2020, investors in Fund I, II, and EA

SIP “will be owed approximately $68.9 million in revenue.” Amend. Compl. ¶ 50. But the

Commission’s description of the debentures sold to investors in those Funds—which define what

investors are owed and when—undermines its own allegation. The Commission alleges that

Defendants sold investors “3-year or 4-year debentures providing fixed annual returns of 8-

10%.” Amend. Compl. ¶46. As such, Defendants would be obligated to pay back principal to

investors three or four years from the date of investment. However, the investors did not all

invest at the same time. Absent some warp in the space-time continuum, there is simply no way

that all the debentures (signed at different times and with different terms) could mature in


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December 2020 as the Commission alleges. Aside from being temporally flawed, this allegation

is also internally inconsistent with other allegations.

The Amended Complaint, alleges that “[w]hile Fund 3 is now closed, Fund 1, Fund 2,

and the EA SIP Fund have collectively been raising from investors $2-3 million per month since

January 2018, and have raised more than $170 million from investors.” Id. at ¶ 48. Even if true,

EquiAlt will owe principal to those investing in January 2018 in three or four years (depending

on the language of the debenture), meaning in six months from the filing of this document and

nearly a full year after the Commission filed the original Complaint in this case. Those investing

after January 2018 would not be eligible to receive their principal until 2021 or 2022. None of

the principal raised in 2018 and 2019 (about 28-42% of the total amount EquiAlt raised) would

be owed by the December 2020 date asserted in the Amended Complaint. Simply put, the

Commission’s allegations regarding the December 2020 date and EquiAlt’s “inability” to meet

its payment obligations by that date are subverted by other allegations that deliver a self-inflicted

mortal wound to the Commission’s Ponzi scheme theory.

C. The Commission’s Allegations Regarding Mr. Rybicki’s Role at EquiAlt Are Undermined by The Evidence It Collected.

In pursuit of its Ponzi scheme theory, the Commission has made a number of incorrect

and unfounded allegations about Mr. Rybicki, including that: (1) Mr. Rybicki exercised a degree

of control over EquiAlt or the Funds; (2) Mr. Rybicki was solely responsible for the content and

substance of EquiAlt’s marketing materials, including the private placement memoranda for the

Funds; (3) Mr. Rybicki knew (or was extremely reckless in not knowing) that third-party sales

agents were not registered; (4) Mr. Rybicki and BR Support Services, LLC received

approximately $24 million of payments from investors; (5) Mr. Rybicki improperly took cash

distributions, between 2017 and 2018 totaling $3.7 million for “return on principal payments”


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and (7) Mr. Rybicki made certain specific misrepresentations to investors. These allegations

either are “supported” by out-of-context and cherry-picked citations to exhibits or, worse,

completely unmoored to evidence or the facts. A careful study of the exhibits used by the

Commission to support their untrue allegations reveals that the allegations are without merit.

As will be discussed below in further detail, the facts demonstrate that Mr. Rybicki did

not knowingly violate any registration or anti-fraud provisions of the securities laws.

1. Mr. Rybicki Has Not Exercised Any Degree of Control over EquiAlt or the Funds

In its motion for a temporary restraining order, the Commission states that Mr. Rybicki is

a principal and “Director of the Funds,” that Mr. Rybicki handled investor relations, including

relationships with various financial advisors who promoted the Funds, and that Mr. Rybicki

spoke directly with prospective investors about investing in the Funds. Pl. Mot. for TRO (DE 4)

at 11; Pl. Mot. for TRO, Ex. 4, Davison Tr. at 72-76, 88-89, 94-95. The Commission further

asserts that Mr. Rybicki signed subscription agreements with investors and was in charge of the

marketing materials and offering documents for the Funds. Pl. Mot. for TRO at 33. Through

these allegations, the Commission painted a false picture that Mr. Rybicki exercised control over

EquiAlt and the Funds, but, once again, the Commission’s own allegations and investigation

undermine the Commission’s characterization of Mr. Rybicki as a control person.

First, Mr. Rybicki did not exercise any control over the general affairs and specific

corporate policies of EquiAlt or the Funds, as that responsibility lay solely with Mr. Davison. As

Mr. Davison testified to the Commission, Mr. Rybicki never had any ownership interest in

EquiAlt. Pl. Mot. for TRO, Ex. 4, Davison Tr. at 46. Mr. Davison also testified that Mr. Rybicki

did not have access to EquiAlt’s accounting software and was not involved in the day-to-day

management of the Funds. Id. at 54, 55, 74. According to the Amended Complaint, it is Mr.


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Davison, not Mr. Rybicki, who had signature authority over and controlled the Funds’ bank

accounts. Amend. Compl. ¶ 10, 39. Indeed, when asked by the Commission to describe

EquiAlt’s reporting structure, Mr. Davison said that Mr. Rybicki “technically reports to me.” Id.

at 76.

Mr. Davison’s testimony to the Commission about Mr. Rybicki’s limited role at EquiAlt

was verified in testimony the Commission obtained from Denver Stoddart, EquiAlt’s controller

of accounting. Stoddart Tr., attached as Exhibit “1” at 26. Ms. Stoddard first confirmed to the

Commission the reporting structure Davison laid out in his testimony. She testified that she had

been interviewed and hired by Davison and that Rybicki played no role in either hiring or

supervising her. Id. at 30, 35. When asked about Mr. Rybicki’s involvement with various

financial reports she testified that she had prepared for Davison, Ms. Stoddard testified that she

had not discussed the reports with Mr. Rybicki, that he never asked her to provide those financial

reports to him, and indeed, that he had not received them. Id. at 40. When asked who makes

strategic decisions for the funds, Ms. Stoddart replied, “Mr. Davison.” Id. at 50. When asked

who was responsible for analyzing the financial performance of the funds, she identified Tony

Kelly, not Mr. Rybicki. Id. at 53. Simply put, EquiAlt’s CEO and Accounting Controller’s

testimony to the Commission contradicts the Commission’s allegations that Mr. Rybicki had

access to or knowledge of EquiAlt’s financial records or performance.

2. Mr. Rybicki Is Not in Charge of EquiAlt’s Investor Documents.

The Commission relies on the testimony of Mr. Davison to allege that Mr. Rybicki was in

charge of the content and substance of EquiAlt’s marketing materials and offering documents,

including the PPMs and subscription agreements. Pl. Mot. for TRO at 33. However, the

Commission cherry-picks from Mr. Davison’s testimony while ignoring other, clearly


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contradictory testimony he provided in this regard. Worse still, the Commission ignores the

testimony of other witnesses that support Mr. Davison’s account that Mr. Rybicki was not in

charge of the content and substance of the marketing materials and offering documents.

The evidence collected by the Commission demonstrates that Mr. Rybicki played no role

in drafting the investor documents. When asked about the PPMs, Mr. Davison testified:

“[g]enerally speaking, on a transactional basis, I created documents like these with counsel about

the time period of 2000—I’m sorry—2011, private placement memorandum generally.” Pl. Mot.

for TRO, Exh. 4, Davison Tr. at 92. It was Mr. Davison who contacted counsel “to help generate

th[e] private placement memorandums,” because—according to Davison—Mr. Rybicki did not

have the “life experience” to help set up EquiAlt first fund. Id. at 99-100. When asked to

describe Mr. Rybicki’s role, Davison said this: “Barry's job literally was to take our package, go

out and see if anybody would carry our product or if met the thresholds that they would put our

product on the shelf.” Id. at 83.

Mr. Davison went on to explain that Mr. Rybicki had “full authorization to provide

documents to the prospective investors.” Id. at 93. Essentially, Mr. Davison is explaining that

he (along with EquiAlt’s legal counsel, Mr. Wassgren) imbued Mr. Rybicki with the “full

authorization to provide documents to the investors. As Mr. Davison described it, the “final

authority” that Mr. Rybicki had with respect to Fund I was limited to the “framework of the

paper that has been provided to us by counsel on a day-to-day basis, yes.” Id. at 97).1

1 For Fund 2, both the Commission’s investigative testimony and its own allegations make clear that another individual named Andre Sears—not Mr. Rybicki—was responsible for Fund 2 sales. Davison testified that Andre Sears was, “on I believe its fund II’s private placement. So he raises money for that fund from time to time.” Id. at 97. Mr. Sears is identified in the Amended Complaint as the “President of Business Development and Marketing,” the same title attributed to him in the Fund 2 PPM described by Davison. Def. Rybicki’s Mtn. to Diss. Exhibit A (DE 118-1). Denver Stoddart, EquiAlt’s controller, said the same: “Andre Sears is like Barry; but he’s over like, he gets Fund II investments so to speak; like the middleman between us and the investors.” Exh. 1, Stoddart Tr. at 57. The allegations of the Amended Complaint confirm Mr. Sears’ role in Fund 2, as all of the false statements therein


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Dale Tenhulzen, a sales agent for EquiAlt, corroborates this point. Mr. Tenhulzen

testified that he spoke with Mr. Wassgren directly about the PPMs and discussed with Mr.

Wassgren how Mr. Tenhulzen would be compensated for selling EquiAlt securities. Tenhulzen

Tr. at 27, attached as Exhibit “2”. Mr. Tenhulzen testified that he had these conversations with

Mr. Wassgren because Mr. Wassgren had informed him “that he wrote the PPM.” Id. at 30. In

short, Mr. Rybicki’s alleged authority over the marketing materials and offering documents was

limited to whatever Mr. Davison and Mr. Wassgren made available to him.

More importantly, the Commission fails to consider whether Mr. Rybicki had the access,

knowledge, and capacity necessary to develop EquiAlt’s marketing materials and offering

documents. The Commission’s evidence suggests otherwise. As previously stated, Mr. Davison

testified that Mr. Rybicki did not have access to EquiAlt’s accounting software, that Mr. Rybicki

had no day-to-day role in the management of the Funds, and that Mr. Rybicki’s “job would be to

take our packages and offer them to financial advisors to see if they would, you know, carry us a

product.” Pl. Mot. for TRO, Exh. 4, Davison Tr. at 55, 74, 73. The Commission’s evidence

demonstrates that Mr. Rybicki did not have access to any of the underlying information

necessary to draft, review, or authorize any of the marketing materials or offering documents.

Mr. Rybicki also did not have the knowledge and capacity to develop EquiAlt’s

marketing materials and offering documents on his own. Mr. Davison acknowledged as much

when he testified that he (Mr. Davison) came up with the idea of raising money for the Funds

through PPMs, that he hired Mr. Wassgren to provide legal advice on all matters related to the

related to Fund 2 are attributable to Mr. Sears. See Amend. Compl. ¶ 69 (alleging that EquiAlt’s President of Business Development and Marketing made false statements to investors related to management fees); Amend. Compl. ¶79 (referencing false statements made to Fund 2 investors regarding its purported registration with the Commission “since 2009”); see Investor James Conley Decl. ¶¶ 8, 20 (representations that the Fund was registered since 2009 were made by Andre Sears, who sold EquiAlt’s Fund 2 securities to Mr. Conley.) Thus, it stands to reason that since Mr. Rybicki did not draft the PPMs for Fund I, then a fortiori he did not draft offering materials for Fund 2, which was created for Mr. Sears’ sales and marketing team.


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Funds, and that that he did not think that Mr. Rybicki had the “life experience” to develop such a

concept. Id. at 99, 107, 100. Moreover, as Mr. Rybicki is not a lawyer, it stands to reason that

he would rely on Mr. Wassgren’s advice with respect to the marketing materials and offering

documents Mr. Wassgren (and Mr. Davison) created.

3. Mr. Rybicki Relied on Counsel When Dealing with Third-Party Sales Agents

The Commission alleges that Mr. Rybicki aided and abetted the primary violations of

Section 15(a) of the Exchange Act by providing substantial assistance to unlicensed sales agents

knowing or in extremely reckless disregard of the fact that they were not registered. Pl. Mot. for

TRO at 35. The Commission’s allegations in this regard are undermined by evidence that Mr.

Rybicki’s interactions with third-party sales agents were guided by advice he received from

EquiAlt’s legal counsel, Mr. Wassgren. Mr. Wassgren repeatedly advised Mr. Rybicki and third-

party sales agents that unregistered agents could receive a marketing fee or finders’ fee in return

for selling EquiAlt securities. Affidavit of James Gray, ¶¶ 10-12, attached as Exhibit “3”. Dale

Tenhulzen, a former sales agent for EquiAlt, testified that Mr. Wassgren had told him that he did

not need a license to legally sell and get paid for the sale of these securities. Exh. 2, Tenhulzen

Tr. at 28.

Another EquiAlt sales agent, John Friedrichsen, received the same advice from Mr.

Wassgren. When he first began selling debentures for EquiAlt, Mr. Friedrichsen was advised by

Mr. Rybicki that Mr. Wassgren had advised him that they did not need to be registered to sell

EquiAlt Funds. Affidavit of John Friedrichsen, ¶ 8., attached as Exhibit “4”. After Davison and

Wassgren created EquiAlt’s REIT Fund, Mr. Friedrichsen wondered whether he could receive

commissions for selling the REIT Fund and, at Mr. Rybicki’s suggestion, called Mr. Wassgren to

inquire. Id. at ¶ 10. During the call, Mr. Wassgren, who “knew I [Friedrichsen] was a sales agent


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for EquiAlt Funds… explained that financial agents needed to acquire a Series 7 license to sell

debentures for the REIT Fund.” Id. at ¶¶ 11-13. Mr. Friedrichsen therefore “understood him to

mean that a Series 7 license was necessary to sell the REIT Fund, but not the other EquiAlt

Funds.” Id. at ¶ 13. Having relied on the advice of counsel with respect to whether unregistered

sales agents could sell debentures for the Funds, Mr. Rybicki did not have the scienter to believe

his actions were wrong with counsel guiding him every step of the way. See SEC v. K.W. Brown

& Co., 555 F. Supp. 2d 1275, 1307 (S.D. Fla. 2008).2

4. Mr. Rybicki Did Not Improperly Take Cash Distributions.

The Commission re-alleges that Mr. Rybicki misappropriated millions of dollars from the

Funds for his personal benefit by “pa[ying] [himself] millions from EquiAlt companies . . .”

Amend. Compl. ¶ 1, 2, 5, 51. As Mr. Rybicki argued in his motion to dismiss the initial

complaint, (DE 118 at 8), this allegation is replete with inconsistencies and conclusory

statements. The Commission still does not provide any factual support for this allegation, but

instead presumes once again that Mr. Rybicki received improper cash distributions by virtue of

his association with Mr. Davison.

There are several reasons why Mr. Rybicki could not have taken cash distributions with

the knowledge and scienter that the distributions were improper. First, as previously set forth

supra, Mr. Rybicki did not exercise any degree of control over the general affairs and specific

corporate policies of EquiAlt or the Funds, as that responsibility lay solely with Mr. Davison. In

addition to Mr. Rybicki’s limited role in EquiAlt’s day-to-day affairs, Mr. Rybicki did not have

2 Mr. Rybicki’s lack of scienter regarding the use of unregistered sales agents is also evident given the way he handled the new REIT Fund. First, he directed sales agents to speak directly with Mr. Wassgren to avoid having them run afoul of what he then understood to be the rules they needed to follow. See Exhibit 3, Gray Aff. ¶¶ 10-12; Exhibit 4, Friedrichsen Aff. ¶¶10-12. Moreover, after receiving this advice, he did not allow unregistered sales agents to sell the REIT Fund. Id. Consequently, the SEC did not charge Mr. Rybicki with aiding and abetting unregistered sales agents to sell the EquiAlt REIT Funds because no unregistered sales agents sold REIT securities.


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access to, nor any authority over, EquiAlt’s bank accounts, as again, that authority and access

was exclusive to Mr. Davison. See Pl. Mot. for TRO, Exh. 4, Davison Tr. at 76 (Mr. Rybicki

“technically reports to me.”) Finally, the Commission even acknowledges in its own Amended

Complaint that Mr. Davison—not Mr. Rybicki—“personally controlled the accounting, finances,

bank accounts, and real estate strategy.” Amend. Compl. ¶10; see also Stoddard Tr. at 50

(Davison made strategic decisions for the funds).

The Commission’s allegations and evidence demonstrate that the authority to decide the

amount, the time, and the place for receipt of a cash distribution from EquiAlt resided with Mr.

Davison, not Mr. Rybicki. Amend. Compl. ¶ 10; Pl. Mot. for TRO, Exh. 4, Davison Tr. at 54,

55, 74. By alleging that Mr. Rybicki somehow directed, caused, or authorized these distributions

with knowledge that they were improper, or much less did so with an “intent to deceive,

manipulate or defraud,” the Commission improperly imputes allegations against Mr. Davison to

Mr. Rybicki. See Aaron v. S.E.C., 446 U.S. 680, 685-86 (1980).

5. Mr. Rybicki Did Not Make the Alleged Specific Misrepresentations Alleged

Under Rule 10b-5, the “maker of a statement is the person or entity with ultimate

authority over the statement, including its content and whether and how to communicate it.”

Capital Corp. v First Derivative Traders, 564 U.S. 135, 142 (2011). More than one person or

entity may have authority over a statement and therefore may be considered the maker of a false

statement or responsible for a material omission. City of Pontiac Gen. Emps' Ret. Sys. v.

Lockheed Martin Corp., 875 F. Supp. 2d 359, 374 (S.D.N.Y. 2012) (“It is not inconsistent with

Janus Capital to presume that multiple people in a single corporation have the joint authority to

‘make’ an SEC filing, such that ‘a misstatement has more than one ‘maker.’ ”) (quoting City of


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Roseville Emps.’ Ret. Sys. v. EnergySolutions, Inc., 814 F. Supp. 2d 395, 417 n.9 (S.D.N.Y.

2011)).

The amended Complaint alleges that Mr. Rybicki made the following material

misrepresentations:

• Rybicki misrepresented to investors that 90% of their funds would be invested in real estate. Amend. Compl. ¶ 58.

• Rybicki had knowledge of the information concerning the funds real estate investments, liquidity and revenues generated by the funds’ real estate holdings. Id. at ¶ 59.

• Funds paid EquiAlt a discount fee or difference in list sale price for particular property and the ultimate purchase price paid by fund to acquire property. Id. at ¶ 60.

• Rybicki was reckless in not knowing funds were paying undisclosed discount fees to EquiAlt. Rybicki received a profit and loss statement in 2017 which reported EquiAlt had generated discount fee income for Fund 1, and therefore, was privy to financial information about the nature and amount of undisclosed fees. Id. at ¶ 61.

• Rybicki’s signed subscription agreements that said no commission payments would be paid and that Rybicki determined if these would be paid. Id. at ¶ 64.

• As early as 2014, Davison and EquiAlt’s accountants provided Rybicki with copies of the Funds’ financial statements highlighting the Funds’ financial results, financial position, investment interest paid to investors and cash flows. Id. at ¶ 66.

• Numerous email communications between EquiAlt’s accountant and Rybicki indicate that Rybicki was informed about a wide range of financial matters relating to the Funds, such as transfers of money among the Funds, distributions to investors, commission payments, and redemptions. Id. at ¶ 67.

• Rybicki was involved in the daily financial operations and activities, including important matters such as ensuring that the Funds had adequate capital to cover redemptions. Id. at ¶ 68.

• Investors for Fund 2 were told management fees were not being paid. Id. at ¶69. As explained supra in subsection “A,” the Commission’s allegations that Mr. Rybicki

drafted or had authority over the statements the PPMs is undermined and contradicted by other

evidence in the record which demonstrates that Mr. Davison and Mr. Wassgren, not Mr. Rybicki,

drafted and had authority over the PPMs. It is further undermined by the testimony of Mr.

Davison and Ms. Stoddart that Mr. Rybicki’s role was limited to sales and marketing, and that he

had no access and no reason to review EquiAlt financials. Knowing this, the Commission

amended its complaint to reference a handful of emails over a nine-year period where Mr.


15

Rybicki was copied, with attachments that they do not allege he reviewed, much less commented

on. They also reference in the Amended Complaint an email where Mr. Rybicki discusses

“getting ahead of redemptions” to suggest that he was “involved in matters concerning the

Funds’ daily financial operations.” Id. at ¶68. 3 But the email does not provide any evidence that

Mr. Rybicki had access to EquiAlt’s financial documents, and the testimony of Denver Stoddart

and Brian Davison make clear that his role was limited to sales and marketing. In light of

Rybicki’s limited role, and in light of the reasonable inference from the Amended Complaint that

EquiAlt actually used investor deposits to amass substantial real estate and cash holdings of at

least $145 million, there is an insufficient basis to find that Rybicki had knowledge of or was

severely reckless in not knowing about EquiAlt’s use of funds.4

3 The Commission also references this email and another, at ¶ 78, in which Mr. Rybicki discusses raising liquidity in the Funds before redeeming an investor’s money. But “the fact that an investor's returns on his or her investments in a business operation are dependent on future investors investing in the entity does not per se make the entity a Ponzi scheme. The key issue is whether the business operation is legitimate.” Jobin v. Ripley (In re M & L Bus. Machine Co.), 198 B.R. 800, 810 n. 4 (D.Colo.1996) (overturning bankruptcy court’s decision that investor had “culpable knowledge” that debtor was operating a Ponzi scheme based on statement by debtor “his check would not be ‘valid until they both obtained another investor to fill this contract and then also generated the necessary equipment and shipment and so forth to live up to their terms with the user.) The Commission’s own description of this case makes clear that EquiAlt purchased at least $145 million worth of real estate. See Compl. ¶ 6 (Notably, this allegation was removed from the Amended Complaint.) Based on EquiAlt’s substantial holdings and the absence of evidence that Rybicki knew about a shortfall, the Commission’s allegations do not establish scienter as to Rybicki. 4 The Commission also is unlikely to establish that Mr. Rybicki violated the Exchange Act as a “Control Person” of EquiAlt. In order to establish derivative liability under § 20(a) of the Exchange Act, a plaintiff must allege that: (1) the controlled person committed a primary violation of the Exchange Act; (2) the defendant had the power to control the general affairs of the primary violator; and (3) the defendant “had the requisite power to directly or indirectly control or influence the specific corporate policy which resulted in primary liability.” Mizzaro v. Home Depot, Inc., 544 F. 3d 1230, 1237 (11th Cir. 2008). As explained herein, the evidence does not support a finding that Mr. Rybicki had the power to control the general affairs of EquiAlt. To the contrary, the allegations make clear that Mr. Davison not only owned the Funds, but also owned, formed, and served as CEO of EquiAlt in Tampa, Florida, which managed the day-to-day affairs of the Funds. Amend. Compl. ¶¶ 10, 12, 14. Rybicki, on the other hand, resided across the country in Phoenix, Arizona, and “communicated with investors and executed debentures and subscription agreements with investors.” Id. at ¶¶ 4, 11. While Rybicki held the title of Managing Director and President of Arizona Operations, “title alone does not suffice to create control person liability” under Section 20(a) of the Exchange Act. Wafra Leasing Crop., 1999-A-1 v. Prime Capital Corp., No. 01 C 4314, 2004 WL 1977572, at *8 (N.D.Ill. August 31, 2004).


16

D. The Commission Cannot Show That There is A Reasonable Likelihood That the Alleged Wrongs Will Be Repeated.

Even if the Commission were to demonstrate a prima facie case of previous violations of the

federal securities laws, it is not entitled to injunctive relief because it cannot prove that there is

any likelihood—much less a reasonable one—that Mr. Rybicki will commit these violations

again. See S.E.C. v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004). The Court considers several

factors in analyzing whether a wrong will be repeated: (1) “egregiousness of the defendant's

actions; (2) the isolated or recurrent nature of the infraction; (3) the degree of scienter involved,

the sincerity of the defendant's assurances against future violations; (4) the defendant's

recognition of the wrongful nature of the conduct; (5) and the likelihood that the defendant's

occupation will present opportunities for future violations.” Id. (quoting SEC v. Carriba Air,

Inc., 681 F.2d 1318, 1322 (11th Cir.1982) (internal citations omitted). Most of these factors

weigh against the entry of an injunction in this case.

1. Egregiousness of the Defendant’s Actions.

While Mr. Rybicki does not deny that the allegations of the Amended Complaint are

serious, for the reasons explained below, the Commission cannot demonstrate that his actions

were egregious. At every turn, Mr. Rybicki acted at the direction of Mr. Davison and Mr.

Wassgren. For example, while the Commission alleges the Defendants engaged in a Ponzi

scheme, there is no dispute that: (1) Mr. Davison and Mr. Wassgren set up EquiAlt and prepared

the initial offering documents which the Commission now alleges contained misleading

statements; (2) Rybicki had nothing to do with EquiAlt’s use of investor funds to purchase,

refurbish or rent real estate; (2) the Funds actually purchased real estate valued at nearly $150

million; (3) Rybicki did not manage the day-to-day operation of the Funds; (4) Rybicki had no

control over the accounts from which Ponzi payments or allegedly “improper” distributions were


17

made. Despite these uncontroverted facts, the Commission wishes to hold Mr. Rybicki

responsible for Ponzi payments he did not make and could not have authorized, and the use of

investor Funds over which Mr. Rybicki had no knowledge, access, or control.

2. Isolated or Recurrent Nature of the Infraction.

This is the only factor Mr. Rybicki agrees weighs in favor of a preliminary injunction. As

alleged in the Amended Complaint, the conduct occurred over a nine-year period. Nevertheless,

the record is replete with examples of Mr. Rybicki’s efforts to comply with the law based on his

own beliefs as well as advice he received from counsel. As explained below, once Mr. Rybicki

became aware—after retaining new counsel—that EquiAlt’s sales needed to be registered with

the Commission to sell all of Equialt’s funds (not just for the REIT), Mr. Rybicki immediately

directed the sales staff to stop processing any and all new investor submissions. Affidavit of

Christos Anastasopolous, ¶¶ 6-8, attached as Exhibit “6”. Mr. Rybicki addressed the sales staff

before the Commission filed its complaint and before Mr. Rybicki could have known that there

was any pending action against EquiAlt.

In contrast with Mr. Davison, who was alleged to have misused assets belonging to EquiAlt

for his own purposes, including the use of a Manhattan condominium, there are no allegations

that Mr. Rybicki misused EquiAlt assets. In fact, despite Mr. Rybicki’s various titles as “Vice

President” and “President”—whichever titles Mr. Davison decided to assign to him—Mr.

Rybicki insisted on paying the full rental price every time he stayed at an EquiAlt property. See

Receipts for Blue Waters II, attached as Exhibit “5”; see also Amend. Compl. ¶ 24 (referencing

Relief Defendant Blue Waters TI, LLC). In other words, while the infractions alleged by the

Commission may have occurred over a nine-year period, Mr. Rybicki demonstrated his efforts to

do the right thing, time and again, when no one was looking.


18

3. The Degree of Scienter Involved.

First, the Commission fails to show that Mr. Rybicki had the requisite scienter—either by

knowing or being severely reckless in not knowing—that EquiAlt was a Ponzi scheme.

Rather, the testimony of Mr. Davison and Ms. Stoddart (EquiAlt’s Controller of

Accounting) contradicts the Commission’s conclusory assertions. As set forth supra, Mr.

Rybicki had neither access nor authority over any of EquiAlt’s bank accounts or financials and

was not involved in the day-to-day management of the Funds. Indeed, Ms. Stoddart, a licensed

CPA who had access to all of EquiAlt’s financial records, testified that she did not even know

there was a shortfall:

Q: “But based on your access to the funds’ financials, you can’t tell me at the present time whether the funds are generating or losing money? A: I’ll have to look into QuickBooks.” And know you say generating and losing, is it -- are you referring to the net income or the operating income? Q: Net income. A: I have to look on QuickBooks definitely. Q What about historically? How have the funds performed historically over the last five years, if you know? A: I’ll have to refer to QuickBooks.

Exh. 1, Stoddart Tr. at 68-69. Mr. Davison testified that while he (and Ms. Stoddart) had access

to Quickbooks, Mr. Rybicki did not. Mot. for TRO, Exh. 4, Davison Tr. at 54-55. If Ms.

Stoddart, a licensed CPA who worked in EquiAlt’s Tampa, Florida office, whose job it was to

review financials, did not know whether EquiAlt was making or losing money, how was Mr.

Rybicki – whose job it was to “literally” “take [EquiAlt’s] package,” id. at 83, to a sales team,

who lived a continent away in Arizona and who, according to both Davison and Stoddart, did not

have access to these financials—supposed to know?


19

Second, the Commission failed to cite to any evidence that Mr. Rybicki possessed the

requisite scienter to misappropriate investor funds. The evidence developed by the Commission

during its investigation demonstrates that Mr. Rybicki did not have access to, or control over,

any of EquiAlt’s bank accounts or finances, and did not manage its day-to-day operations in

Tampa, Florida. It is, therefore, inconceivable that Mr. Rybicki—with no access to or control

over EquiAlt’s finances—could have even known that a distribution—which based on the

Commission’s own allegations, could only have been authorized by Mr. Davison—would have

been improper.

Third, Mr. Rybicki did not possess the requisite scienter regarding any of the

misrepresentations alleged by the Commission. EquiAlt retained the services of Paul Wassgren

in virtually all aspects of EquiAlt’s business operations and entrusted him with ensuring EquiAlt

complied with securities laws. l. Mot. for TRO, Exh. 4, Davison Tr. at 99, 107, 100; Mot. for

Leave to Retain Counsel (DE 121) at 4. As stated supra, Mr. Wassgren prepared EquiAlt’s

marketing materials to investors aware of the purpose for which these materials would be

disseminated and used, vetted and participated in approving EquiAlt’s PPMs; and provided legal

advice to EquiAlt as to the legality of paying commissions to unregistered sales agents for the

sale of debentures. And naturally, Mr. Rybicki relied on Mr. Wassgren’s approval and

assurances regarding EquiAlt’s activities; see Exhibit 3, Gray Aff.; Exhibit 4, Friedrichsen Aff.

Mr. Rybicki will be able to establish an advice of counsel defense, or he will at least demonstrate

that he acted in good faith and without scienter. See SEC v. Huff, 758 F. Supp. 2d 1288, 1348-49

(S.D. Fla. 2010); see also Markowski v. SEC, 34 F.3d 99, 104-05 (2d Cir. 1994).

Finally, Mr. Rybicki’s actions throughout the alleged period demonstrated that he sought to

do the right thing when no one was watching; these actions are inconsistent with the allegations


20

that Mr. Rybicki had the requisite scienter. For example, as previously stated, Mr. Rybicki did

not misuse EquiAlt’s assets for his own personal benefit, but instead paid rent whenever he

stayed at an EquiAlt property. Also as previously stated, Mr. Rybicki directed sales agents to

speak with Mr. Wassgren when they had questions regarding the legal requirements for selling

EquiAlt Funds. And, notably, Mr. Rybicki halted the sale of funds—before the Commission

filed its action—when he was advised that the continued sales might violate the law. Exhibit 4,

Friedrichsen Aff.¶¶ 14-15; Exhibit 6, Anastasopolous Aff. ¶¶ 6-8.

His desire to do the right thing continues to this day. Recently, Mr. Rybicki noticed that

one of his accounts, a personal Comerica bank account with a substantial amount of cash on

deposit, was unfrozen notwithstanding this Court’s order. Even though he had not received his

periodic check for expenses and was falling behind on paying his bills, Mr. Rybicki’s first

instinct was to advise the undersigned to alert the Commission and the Receiver that the account

had somehow been unfrozen.

This case presents a sad example of Commission overreach; Mr. Rybicki has been

improperly alleged to be wrongdoer based on the alleged actions of others despite his efforts to

seek legal guidance and do things the right way. At a minimum, the Commission has not and

cannot demonstrate the extraordinary and drastic remedy of a preliminary injunction as to him.

4. Mr. Rybicki Immediately Directed Sales Agents and BR Support Staff to Stop Selling EquiAlt Debentures When He Realized They Needed to Be Registered.

Mr. Rybicki’s actions demonstrate the sincerity of his assurances against future violations

and his recognition of the wrongful nature of the conduct. As explained herein, Mr. Rybicki

relied on the advice of Mr. Wassgren with respect to whether sales agents needed to be registered

with the Commission to sell Equialt debentures. After meeting with new counsel, Mr. Rybicki

learned that the advice he received from Mr. Wassgren was faulty and that sales agents did in


21

fact need to be registered before selling EquiAlt Fund debentures.5 Mr. Rybicki immediately

took steps to cease any improper conduct as soon as he learned that the advice upon which he

relied was faulty. He notified both his sales agents and staff and directed them to stop selling

and processing EquiAlt Fund debentures immediately. Exhibit 4, Friedrichsen Aff. ¶¶ 14-15;

Exhibit 6, Anastasopolous Aff. ¶¶ 6-8. He took these steps before the Commission filed its

action. Exhibit 6, Anastasopolous Aff. ¶¶ 6-8. Mr. Rybicki’s actions in this regarding establish

that he follows the law and poses no danger of repeated conduct.

5. Mr. Rybicki’s Current Occupation Presents No Opportunities for Future Violations.

First, as referenced in Section D.4, supra, through his actions, Mr. Rybicki has repeatedly

made clear that when provided with the appropriate legal advice, he follows the law.

Additionally, Mr. Rybicki is no longer employed in the securities industry, but is instead

working with his family to develop a pool servicing company. Affidavit of Rosemarie Rybicki,

attached as Exhibit “7”. Mr. Rybicki is working full time—ten hours per day—to restart his life

and help his family develop this business. Id. ¶ 5. Mr. Rybicki participated in a training

program and is now an employee for the family’s pool servicing business. Id. ¶ 4. Because the

business is relatively new, Mrs. Rybicki does not expect the business to generate profits until

October 2020. Id. ¶ 3. Accordingly, Mr. Rybicki’s current occupation and future plans have

absolutely no relationship to the securities industry and offer no opportunities for future

5 There is other evidence in the record supporting the notion that Mr. Wassgren provided faulty legal advice to Mr. Rybicki. Recently, the Court granted a motion by the Receiver to hire counsel to explore a lawsuit against Mr. Wassgren and his law firms, Fox Rothschild, LLP and DLA Piper, LLP for damages caused to EquiAlt based on bad legal advice provided by Mr. Wassgren. (Order, DE 127). In its Motion, the Receiver explained that the services Wassgren provided included “included forming Receivership Entities, drafting documents used to solicit investors, and providing advice concerning registration requirements and other matters. The lawyers represented EquiAlt and the funds it created on a continuous basis from their inception and were involved in almost every aspect of EquiAlt’s business.” Mot. for Leave to Retain Counsel (DE 121) at 4. The Receiver asked this Court for leave to hire a law firm on a contingency matter because he “believes the law firms could have liability to the Receivership in connection with these activities.” Id.


22

securities violations. With no reasonable likelihood of future violations under these

circumstances, the Commission’s preliminary injunction motion against Mr. Rybicki must be

denied.

III. CONCLUSION

For the foregoing reasons, the Court should deny the Commission’s Motion for a

Preliminary Injunction.

Respectfully submitted,

July 24, 2020 /s/ Adam S. Fels ADAM S. FELS Florida Bar No. 0114917 FRIDMAN FELS & SOTO, PLLC 2525 Ponce De Leon Blvd., Ste. 750 Coral Gables, FL 33134 Tel: (305) 569-7701 [email protected] Attorney for Defendant Barry Rybicki

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that the foregoing has been filed via the Court’s CM/ECF system,

which will send an electronic copy of the foregoing and a notice of filing same to all counsel of

record, on this 24th day of July, 2020.

/s/ Adam S. Fels


mailto:[email protected]

EXHIBIT 1

Case 8:20-cv-00325-MSS-AEP Document 152-1 Filed 07/24/20 Page 1 of 154 PageID 3188

Page 1

(;N I TED S~ATES SECURI 'I IES J:I.N D EXC:l.ll.NGE CO:1MISS ION

I n the ~at te r of:

CERTAlN U:,.:JREGISTJ:::RED

SECCRITIES

w:TNESS : Denver S t oddart

PAGES: 1 t hrough 1 5 3

File No. fL - 04 167-A

PLJ:I.CE: Securities and Exchange Comrniss jon

801 Bric~cll Avenue

DATE :

Su ite 1800

Miam::., FL 33141

Tht:rsday , Deccr:1ber 5 , 20 19

The above- entit l ed mat ~er o~ for hearing,

pursuant t o the not : ce , at J0 : 10 a .~.

D::.verslfied Reporti ~g Services , I ~c .

(202 ) 467 -9200

'


Page 2

1 APPEARANCES:

2

3 On Behalf of the Securities and Exchange ComDissi.on:

4 ANDRE ZAMOR1'.NO

5 MARK DE3

6 CH.!\NEL ROWE

7 ALISS JOHNSON

8 Securities and Excha~ge Com.~ission

9 801 Br i ckel l Avenue

:o Suile 1800

11 :-1iami , FL 33::.41

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?. 5

On behalf of the Witness :

JONATHAN H.!\RAY

DLA Piper

500 8th Street Northwest

Washington , DC 2004

J ESSICA MASELLA

RACHAEL KESSL=.I{

1251 Avenue of t.he .!\:nericas

New York, New York

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C O N T E N T S

WITNESS:

Denver St oddar t

EX HI3I ':'S : DESCRIPT I ON

1 SEC form 1662

3 Report

4 Equ ialt f und propert y l is~

S Statement cash f l ow

6 P~ofit & Loss a l: ~ransaction

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BR Supper: Services

Exhi bit t o cash flow

Depreciable assets , real

Property

Loan

Ba ·1 a nee sheet

Noni nterest note

Statement or cash flow all

Trar.sact:on

P & L for fund I!

EA S : P Statement of cash f l ow

All transac tion

p & L for EA SIP

QO:l A:1d.:. t

?age 3

EXAMINATION

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IDJ,,N':'IF:ED

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CONTENTS (CONT . )

EXHIBITS : DESC:U PT I ON

1.8 REIT Audit

1 9 Distrib·..1 tions

20 Ba.:.ance Sheet Fund I 1 2/31/11

21 Ba_ance sheet Fund I 12/31/12

22 Reverse opening Balance

Page 4

IDSNTIFIED

134

142

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Page 5

1 P R O C E E D I N G S

2 MR . ZAMORANO : We ' re on the record at 10 : 10

3 on December the 5th, 2019 .

4 Whereupon,

S DENVER STODDART

E was called as a witness and , havjng been first duly

7 sworn , was examined and testified as follows :

8 EXAMINATION

9 BY MR. ZAMORANO :

10

11

12

Q Please state your full name and spell your

name for the record.

A My name is Denver Abbey-gail Stoddart .

13 Denver is spelt D- E- N- V- E-R, Abbey- gail as well is

14 A-B-B- E- Y - G-A-I-L and l ast name Stoddart is spel t

,~ S- T-0-D-D-A- R- T as in Tom .

::.6 Q Just by way of brief introduction. My name

17 is Andre Zamorano. I'm an officer for the purposes of

18 this proceeding. Also present are Mark Dee, Chanel

19 Rowe and Alise Johnson who are also officers of the

20 Commission for the purposes of this proceeding .

21 This is an investigation by the United

22 States Securities and Exchange Commission in the

23 matter of Certain Unregistered Securities Transactions

2~ for the case number 4167 to determine whether there

25 have been violations of certain provisions of the

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Page 6

1 federal securities laws. However, the facts developed

2

3

4

in this investigation might constitute violations of

other federal or state, civil, or criminal laws.

Prior to the opening of the record you were

5 provided with a copy of the formal order of

6 investigation in this matter as supplemented, it will

7 be available for your examination during the entire

8 course of this proceeding.

S Ms. Stoddart, have you had an opportunity to

10 review the formal order?

11 A Yes , I have .

12 Q Also marked as Exhibit No. l -- I believe it

13

14

1 5

16

17

18

should be marked as Exhibit No. 1 already -- is the

SEC form 1662, that document.

Q

(SEC Exhibit No. 1 was marked for

identification.)

BY MR . ZAMORANO :

Ms. Stoddart, have you had an opportunity to

19 review that document?

20 A You said Exhibi t No . l . Which one is

21 Exhibic No . 1?

22 MR . HARAY : Yeah. Our copies are not

23 marked .

2~

25

MR . ZAMORANO : Here . Let me have it .

MR . HARAY : Okay .

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3 Q

!:'a ge 7

:MR . ZAMO~ANO: Thanks .

BY MR . 7,AMORANO :

Exhibit No. 1, which is the SEC form 1662

4 that was provided to you before the opening of the

S record. Have you had a chance to review that

6 document?

A Yes , l riave . 7

8 Q Do you have any questions concerning that

9 notice?

1 0 A No~ at this t~me .

11 Q Ms. Stoddart, are you represented by

12 counsel?

A Yes , I am .

MR . ZAMORANO: \•loul d counsel please identi f y

JS himse:f , hersel f .

16 MR . HARAY : Sure. I guess I ' l l start . I ' n

17 Jona t han llaray with -.:he l aw firm o f DLA Piper . ~Jou l e

18 you l ike my addr ess?

19 t-:R . ZAMORAKO : Yes , please .

20 MR. HARA~ : Okay . 500 8-.:h Street Nor thwest

21 Washington, DC 2004 .

22 MS . MA.S ELLA : Jessica l'-'.aselJ a also ,,;i. t h the

23 l a•.•1 firm of DLA Piper i n New York , which j s at 1251

;>1J Aver:ue o f the Amer i cas, Ne1-1 Yo r k , Ne1•1 York .

25 MS . KES S LER : Rachael Kessler also with the

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Page 8

1 la1-1 firm DLA Piper . I ' m also i.n the New York office ,

2 1251 Avenue of the Americas , Ne1-1 York, New York.

3 MR . ZA~OR~NO : Counsel , do you represent any

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other parties i~ this matter?

MR . HARAY : Yes .

BY MR . ZA.."IORAKO:

Q Ms. Stoddart, do you understand that the

representation by counsel of other parties in this

matter may create a potential conflict of interest?

A Yes , I am aware.

Q Okay. Notwithstanding your knowledge of

that fact, are you still willing to have counsel

represent you here today?

A Yes , I am.

Q Just a couple preliminary matters just to

make this go by a little bit easier. If you don ' t

understand the question that I pose to you, if it's

unclear or if you don't understand it, feel free to

ask me to rephrase it and I'll be glad to do that.

A All right.

Q Also, so the court reporter can take down

this record accurately, it's important that you let me

finish my question before you respond. Do you

understand that?

P.. Yes , sir.

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Q Okay . Finally, if you want to take a break

for water or for -- to speak with your counsel, or for

some other reason, feel free to ask me for a break and

we ' ll be glad to accommodate you with that respect.

A Oka y.

Q Ms. Stoddart, just a couple additional

preliminary matters. Here ' s a copy of the subpoena

that we sent to you care of your counsel Jessica

Masella. Have you seen this document before?

A Yes , I have .

Q And do you understand that you're appearing

here today pursuant to the subpoena?

A Ye s , I do .

Q Just want to ask you some background

questions before we get into the substance of your

16 testimony .

:7 You just stated your full name, do you go by

18 any other name?

19 A I go by Denver Su ther land as well , which is

20 my

21

22

23

24

25

Q

A

Q

A

Q

Sutherland?

Yes , Sutherl and , which is my nee name .

How do you spell that?

S-U-T-H- E- R- L-A-N- 0 .

And since when have you been using that

I

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Page lC

1 name?

2 A I ~se it before I got married, but some of

3 my documents may sti l l have my maiden name on it .

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P..

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Q

A

Q

Okay. And your maiden name is?

Sutherl and .

Okay.

BY t•'.R. HARAY :

Did you say your nay?

Kee.

Nee, yeah.

A N- E- E .

Q Got it.

BY MR . ZN--:JORANO :

Q And your date and place of birth?

A My place of birth is -- I think it ' s

. .

And your country of citizenship? Q

A My citizenship is currently with the United

States of America .

Q And your marital status?

I ' m married .

And your husband ' s name?

.

Does your husband work with you?

A

Q

A

Q

A He works wit:1 me maybe on businesses that we

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Page 11

1 may have by ourselves or business ventures that we may

2 have had at other points i n Lime.

3

4

5

6

7

Q

.b,

Q

A

Q

Okay.

No= as an accountant .

Is he a CPA?

No . He ' s no t.

Okay. And what is the address of your

8 primary residence?

9 A Our primar y r.esidence i s

:o Li thia , rlorida ZIP code 335~7 .

: 1

:2

13

14

Q

A

Q

A

And how do you spell Lithia?

L- I - T-H-I-A.

And how long have you lived there?

I ' ve lived the r e since April of ?.015 I

J 5 be lieve i t ~s-

16 Q Can you identify for us any telephone

17 numbers that you use, either landlines or cellar

18 service?

19

20

21

22

23

cell

A Landline or VoIP or whatever they call

Q VoIP.

A -- is 95 -- yeah. It's .

number is . Those I currently

Q And do you operate a website either

24 personally or through any of your businesses?

it

:,1y

use .

25 A I ' ve had a ousiness website called Denver

=

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Page 12

1 Stoddart C?A & Associates . I think the ,.,ebsi te is

2 Stodctavtcpa . com .

3 Q Is that website still active?

1

5

6

7

8

Yes , it is .

How about e-mail addresses? Do you have any

business e-mail addresses?

A It ' s or

1 also have Equialt e-mail addresses

9 as 1-,eJ. l.

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Q

A

And what are those e-mail addresses?

It ' s going to be Denver Equialt . com . J a l so

have 11.ccounting Equial t . com .

Q Accounting

P.. Yes .

Q Equialt.com?

A

Q

A

Q

Yes .

Okay. Do you have a Linkedin page?

Yes , I do.

And does your Linkedin page reference

20 anything concerning Equialt, LLC?

21 A I don ' t think it has been updated since 1

22 started working at Equialt .

23 Q Okay. Do you have a Facebook account?

24 A Yes, I do .

25 Q Do you use a Facebook account for business

II

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Page 13

1 purposes?

2 A _ use one for Denver Stoddart CPA &

3 Associates . So I have a business page .

4 Q Do you use any instant messages or similar

5 electronic communication services , including like

6 Bloomberg , Skype or WhatsApp?

7 A WhatsApp .

8 Q What is the identifier for the WhatsApp?

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

A I'm not sure what you mean by identifier . C

just use my phone number normally and my name .

Q Okay . Your business phone number or your

personal?

A

Q

No . It ' s a personal WhatsApp .

Okay. Do you use it for business purposes?

A No .

Q Are you now or have you ever been an officer

or director of any publically held company?

A Publically held? No .

Q Have you been an officer or director of a

privately held company?

A If a 50l(c) (3) is categorized as that . I 'm

noc sure , buL I ' m a~ officer or cofounder o: a

charity .

Q

A

A charity that you formed or founded?

Yes . My husband and myself.


Page 14

1 Q And what's the name of that charity?

2 A Pure Love Foundat ion Corp .

3 Q Are you now or have you ever been a

4 beneficial owner directly or indirectly of 5 percent

5 or more of any class of equity securities of any

6 publically held company?

7 A No , I have not.

8 Q Are you now or have you ever been a

9 beneficial owner directly or indirectly of any

1 0 previously held company, corporation, partnership,

11 limited liability company or the corporate form other

12 than the 501(c) that you just mentioned?

13 A I ' m sorry . Your voice went down a l itcle.

14 Repea t chat.

15 Q Sure. Are you now or have you ever been a

16 beneficial owner directly or indirectly of any

17 privately held company, for example, a corporation, a

18 partnership, a limited liability company or other

:9 corporate form?

20 A Yes , I have .

21

22

23

Q

please?

Can you identify those entities for us,

A Undiluted Music , Righteous Rockers Movement,

24 Pure Love Foundation as I mentioned , Sardius , LLC.

25 Q How do you spell that?

-

1,

11


1

2

3

4

Page 15

A S-A-R-D- I - U- S . All Stages Corporate Housing

Group, Bizdom, LLC, and Denver Stoddart CPA &

Associates that I can recall .

Q Tell us a little bit more about Denver

5 Stoddart CPA Services. Is that an active business?

6 A I t is still active somewha;:; , but I ' ve just

7 kept it opened. I operated it before I started with

8 my current employment , so I still have i;:; opened . 1

9 wouldn ' t say completely active . I still do one or two

10 tax returns each year through that entity .

Q Does that entity have any employees other 11

12

13

14

15

::. 6

than yourself?

17 in?

18

A Not at this time .

Q

A

Q

A

When did you form Denver Stoddart CPA?

1 think it was January 2015 .

And what type of business was it involved

Denver Stoddart CPA & Associates does

19 accoun;:;ing, Lax preparation services for individuals

20 and corporations; small businesses primarily .

21 Q So at the present time this entity doesn't

22 have any clients other than perhaps one or two that

23 you do tax returns for?

24

25

A

Q

Only a few . Maybe five or less .

Was Equialt, LLC ever a client of Denver

" 11

i


Page lE

1 Stoddart CPA?

2 A Yes , they have .

3 Q During what period of time?

4 A Thal was probabl y from 2018 .Z>.pr i l to January

5 2019 . And t hen j ust to correct . Equialt -- not

6 E:qu i a:.t , LLC ci.:.rectl y , it's more Equia l t. Real Es ta t e

7 I nvestment Trus t I ncorpo r a t ion . That's 1:he correct

8 one.

9 Q What was the correct entity that employed

10 your CPA services?

11 A Equial1: Secured Income Portfo: io ~SIT , I nc .

12 Q Okay . That's the entity that hired your

13 company?

: 4 A Yeah . That ' s Lhe one I have the engagement

15 le t ter name in .

16 Q Do you have any securiti es accounts?

17 A In saying secur ities , you mean :ike stocks

18 and bor.ds?

19

20

2 1

22

23

Q Brokerage accounts, correct.

A I have minima l secu r ities I believe wlth

Capi t al One that ' s now E-Trade or something to that

e [[ ecc .

Q Okay . And where do you do your banking?

24 A I bank wi. th Bank o f Amer·ica pr:..marily , I

25 also have ban king with BB&T and a:so Ba xter Cred it

I


1

2

Union .

Q

Page 17

I'm going to ask you a couple of questions

3 concerning any involvement that you may have had in

4 prior legal proceedings .

5 A Yes .

6 Q Have you ever testified in any proceeding

7 conducted by the staff of the Securities and Exchange

8 Commission?

9

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11

12

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16

17

18

19

20

A

Q

A

Q

• TJ.

Q

A

Q

A

Q

A

Q

No , 1 have not .

A US or foreign federal or state agency?

No, : have not .

A US or foreign federal or state Court?

No, I have not .

A stock exchange?

No, I have noL .

The Financial Industry Regulatory Authority?

No , I have not .

Or any other self-regulatory organization?

No, I have :1ot .

Have you participated in any arbitration

21 proceeding related to any securities transactions?

22 A No , L have not.

23 Q Have you ever given a deposition in

?.4 connection with any Court proceeding?

25 A I don ' t know i f i~ went to Court , but I ' ve

--


Page 18

1 had to give a testimony about an accouni::s receivable

2 oui::standing balance whi l e I worked 1-lith General Growth

3 Pro;,erties in Pembroke Lakes , Florida . I had t o

4 attest to the balance outstanding for a particular

5 tenant .

6 Q Okay. And that was with respect to which

7 employment -- employee?

g

9

10

11

A

Q

A

Q

General Growth Properties .

General Group?

Growth . General Growth Properties .

Growth Properties, okay.

12 Have you ever been named as a defendant or

13 respondent in any action or proceeding brought by the

1 4 SEC?

15

16

17

18

19

20

21

22

23

24

25

A

Q

A

Q

A

Q

A

Q

A

Q

A

No, I have not .

Any other US or foreign federal agency?

No . Not -- no , I ' ve not .

A state securities agency?

No, I have not .

FINRA?

No .

And SRO?

No , I have not .

Or any exchange?

No .


Page 19

1 Q Have you ever been a defendant in any action

2 alleged violations of the federal securities laws?

3 A No , I have not.

4 Q Have you ever been a defendant in any

5

6

7

8

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10

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12

13

14

15

16

17

18

19

20

criminal proceeding other than one involving a minor

traffic offense?

A No , I have not .

Q I'm going to ask you a couple question about

your educational history.

A Okay .

Q Where and when did you graduate from high

school?

l-, I graduateci from high school 1996. The high

school situation is d l fferent in Jamaica . Sc you have

two graduations. You graduate from basic high school

in 1996 and then you go onto advance studies , whl ch I

gradualed from in 1999 I think . No . 1993 I graduated

high school --

Q Okay .

-- with a high school diploma . 1995 I

21 graduated from the advance program.

22 Q That's more like a university or college

23 program?

24 A It ' s like the first year of university here ,

25 but you do it at the same high schooJ.

'

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1 Q

Page 20

What was the name of the high school that

2 you attended?

3 A St . Hughs High.

Q And the school that you attended for the

5 advance studies?

6

7

8

9

10

A It would be St . Hughs High as well .

Q Have you attended university or college in

the United States?

A Yes , I did .

Q Where and when?

11 A I attended Florida Atlantic University in

12 Boca Raton , Florida . I think that was from about 2006

13 to around 2008 .

14

15

16

17

18

Q

A

Q

A

Q

19 masters?

Did you graduate with any degrees?

I graduated wi l h a masters !n accounting .

What year was that?

I currently reside in Lithia , Florida .

No. I 'm sorry. When did you get your

20 A I think that graduat!on year was probably

21 2008 or 2009 , yeah .

22 Q Have you taken any other securities,

23 accounting or business related courses since you

24 graduated from university?

25 A I took a Series 6 exam with H. D. Vest in


Page 21

1 about 2017 .

2

3

4

5

Q

A

Q

A

What is H.D. Vest? Is that a broker-dealer?

l think more a n advisor company I think.

Financial advisor?

Yeah . I don ' t know the details of exactly

6 what they do anymore .

7

8

9

Q

A

Q

And is that license active?

No , it ' s not .

Okay. Do you hold or have you ever held any

10 professional license?

11 A I currently hold a CPA license , Certified

12 Puolic Accountant .

13

14

15

16

17

18

19

20

21

22

23

2~

Q Here in Florida?

.u. Yes .

Q Any other jurisdictions?

A. No .

Q And when did you get your CPA license?

A 2015 .

Q As the license ever been suspended or have

you had any disciplinary proceedings?

P.. No , I have noi:. .

Q Are you or have you ever been a member of

any professional business club or organization?

A I ' m a part of the Al!lerican Institute of

?5 Certified Public Accountants and the Florida Institute

.

'

.


Page 22

1 of Cert ified ?ublic Accountants.

2 Q Okay. I would like to ask you a couple

3 questions concerning your employment history starting

4

5

6

from the time that you finished your masters degree --

A Okay .

Q at FIU. Where did you go work after you

7 graduated?

B A When l graduated I was still employed, :

9 believe , with General Growth Properties at the Boca

10 Raton mall office .

11

12

13

1~

15

16

17

18

19

Q What type of business was General Growth

Properties?

A It "s a real estate investment trust .

Q And what did you do there?

A I was a property accountant that was in

charge of accounts receivables and acco~nts payables

for that particular mall.

Q Okay. How long did you work there?

A I worked ac General Growch Properties a

20 total of seven years , but during chat time you are

21 located at different mall properties . For that

22 particular location , it may have been about cwo years .

23

24 for?

25

Q

A

But it was the same entity that you worked

Yes . So it ' s about seven years for that

11


Page 23

1 same entity .

2 Q But you worked at different malls that were

3 owned by the company?

4 A Yes .

5 Q When did you stop working there? Do you

6

7

8

9

:. 0

: 1

12

13 ] t]

15

16

17

18

19

20

21

22

23

24

25

recall what year more or less?

A I think it ' s around 2011 , 2012 .

Q Where did you go work after there?

A I went to Greenfield Properties Group also

in Boca Raton , Florida .

Q What type of business was that company

involved in?

A I t' s a real estate property management

company .

Q

A

Q

A real estate management company?

A real esta~e propercy management company .

Okay. And what were your employment duties

and responsibilities at this company?

A At ~hat time I - - : •m not sure of if I was a

property accountant still or just staff account .

Responsibilities , accounts receivable , accounts

payable monthly reporting , yeah . Genera l monthly

accounling close process is t he best way to put it .

Q Did either of these two companies have any

affiliation, connection or involvement with Equialt,

- =


1

2

3

LLC?

A

Q

4 go work?

A

6 Validus .

7

8

Q

A

Page 24

No, they did not.

After Greenfield Properties , where did you

After Greenfield Properties I went to Carter

Can you spell that?

C-A-R-T- E- R, Validus is V- A-L-I-D- U- S . And

9 they are out of Tampa , Florida.

10

:..J 12

]3

14

lS

Q

A

And what type of company is that?

They are a real estate property management

company as >Hel l.

Q Real estate property management?

P..

Q

Yes.

Who are the principals or the owners of that

1 6 company?

17

18

19

A I remember the name John Carter . He was the

main owne r of that company .

Q And what did you do for them?

20 A There I was the accounting manager for Lhat

21 company . So I would oversee an accounting staff and

22 a l so responsible for mon th-end accounting close

23 p r ocess .

2,;

25

Q

A

What was that last point? I'm sorry.

And I would be in charge of monthl y

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7

8

9

1 0

11

12

13

1 4

15

16

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Page 25

accounting close process .

Q Was this a public or private company?

A I t was a private company . It was public to

t he extent that t hey had to maie the information

public and they had to report ~o the SEC, but they

didn ' t have s~ocks that were traded . That ' s the bes~

way I guess I can put it .

Q Were you involved in the SEC reporting

process?

A No, I was not .

Q And how long did you work for this company?

A About two and-a- half years .

Q And following your employment there, where

did you go work?

CPA .

A I started my own practice , Denver Stoddart

Q

A

Q

And where was your own practice located?

Li t hia , ~·torida .

And just tell me a little bit more about

20 your accounting practice. How many employees did it

21 have when it was operating?

22 A It had

23 Q How many clients it had at its maximum?

24 A There was nobody there with a W2 to say

25 employees .

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Page 26

1 Q Okay.

2 A But they were contract workers t:'1at would be

3 there as consul tants . There would be about two

4 consultants that I would employ .

5

6

Q

A

And what type of clients did you have?

Primarily real estate clients , small

7 business owners t hat own a few properties and needed

8 their accounting done fo r those properties .

9 Q Okay. Who is your current employer?

10 A My current employer is Equialt , LLC .

11 Q And how long have you been employed by

12 Equialt, LLC?

13 A I ' ve been employed by them since February

14 2019 . I ' m not sure how many months thaL is.

15 Q And what is your title?

16 A l ' m t~e accounting controller .

17 Q And you mentioned that you had done some

18 consulting work for the real estate investment

19 trust --

20

21

22

23

A

Q

A

Q

24 Fund, LLC?

Yes .

-- before?

Yes .

Had you done any consulting work for Equialt

25 A I had come on board as Equia l t REIT, LLC and


Page 27

1 that invol ved getting information from the fund , but

2 not employed by them .

3

4

6

7

8

9

Q

A

Q

[\

Q

But not employed by them?

No .

What about Equialt Fund II, LLC?

Not before I came on board in February .

Not until you were formerly employed by

Yes.

-- Equialt, LLC --

10 A Yes .

1 1 Q -- in February 2019? Okay.

12 How about Equialt Qualified Opportunity

13 Fund , LP?

14

lS

]7

18

19

20

21

22

23

24

25

A 1 was involved in that at the end of last

yea~.

Q And what was your involvement?

A My involvement came i n just overseeing the

entries that were made by the bookkeeper at that time .

Q

A

Q

A

And who was the bookkeeper at that t ime?

Michelle Rodriquez Diaz .

Is she tell working there?

No, she's not .

Q Okay. How did you first become involved

with the Equialt Qualified Secured Income Portfolio

REIT?

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I

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Pa9e 28

1 A I was reached out to by Taylor White .

2 Q I'm sorry?

3 A Taylor Wh i ce , which is an account ~~g

4 recruitinc; firm while I was :1aving my CPI\ prac-;;ice .

5 And t hey reached out to me a nd le-;; me know tha-;; there

6

7

8

9

10

is a new entity t hat is being forned , and chey would

l j :<e me to corae on board j ust to get the documents

p r epared to make t he PPM or the prospectus offering

fo ~ t hac entity .

Q What documents specifically are you

11 referring to that you were asked to participate in

12 preparing?

13 A I ' ll call it the PPM . I ' m no-;; sure what i t

14 offic i ally stands for . I think it ' s a -- I ' m not

]5 r eally sure what it stands for .

16

17

Q

A

Okay .

?PM. Those are the cocuments that use to

18 offe r to give to invest ors so tha t they can invest .

19 Q Okay. And that was for the Equialt

20 Qualifi ed Secured Inc ome Portfoli o REIT --

21

22

23

24

25

Q -- Inc . ? Tell us a little bit about what

you did specifically wi th respect to the documents?

A : •,1i l l obtain from Mic::1el:c Rodriquez at

that time whatever numbers they may ::1ave on che

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2

3

4

5

6

7

8

9

10

:. 1

12

13

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Page 29

history of the entities , including the fund and I

wou l d verify the numbers and also we use t hat in the

PPM as a projection to see how the RE: T , t he

history -- and the history of the existing operations

of the owner and then use it Lo present in the REIT

prospect us .

Q You mentioned that you gather numbers from

other entities?

A

Q

Yes. From Ms . Michel l e Rodriquez .

Okay. Which other entities are you

referring to?

A She would use for f und 1 , fund II , Fund III

at times and EA SIP .

Q Okay. So the funds you're referring to as

15 fund 1 is Equialt Fund, LLC?

A 16 Yes .

17 Fund II is Equialt Fund II, LLC? Q

• 'A. 18 Yes .

19 And then EA SIP, LLC? Q

A 20 Yes.

2 1

22

23

24

25

when

REIT?

Q

you

Okay. Who was the person that hired you

first were working as a consultant for the

A I don ' t remember her name , but she was one

of the managers from Taylor White .

Ii

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2

3

4

5

6

7

8

9

10

11

12

J 3

14

15

J 6

17

18

19

20

21

22

23

24

25

Q

Page 30

And what about at the REIT? Was there a

person that hired you from the REIT?

A I was hired through Taylor White, but I d i d

my interview wi th Brian Davison .

Q And you mentioned that you became an

employee and -- of which entity in 2019?

A I became an employee of Equialt , LLC .

Q And who offered you the position?

A Brian Davi son .

Q And who is Brian Davison?

A

Q

A

Q

A

Q

A

Q

Q

A

He is ~he CEO of Equ ' alt , LLC .

Did you interview with Brian Rybicki?

No, I d i d not .

What is your title at Equialt, LLC again?

Accounting contr ol l er .

Is there a CFO?

Not that I ' m aware of .

Has there ever been a CEO there?

MR . HARAY: CEO or CFO?

i3Y MR, ZAMORANO :

CFO.

CFO? I believe Barry Rybicki has been CEO

over some e ntities . I don ' t know if it ' s over

Equialt , LLC directly .

Q A CFO?


l

2

3

A

Q

A

Page 31

CE -- Cf'O , yes .

Chi ef financia l officer?

Yes . I don ' t know l f it ' s ove r the R2IT or

4 the QOZ , or over which entity .

5 Q Tell us a l i ttle bit about what your

6 employment obligations and responsibilities are on an

7 overall basis and also i f you can tell us what you do

8 on a day to day basis as well?

9 A I oversee the accoun ting operatioris of

10 Equialt , LLC who is basically the manager of all the

11 other related funds. I t includes day- to -day

12 cond ucling wire transfer transactions as needed for

13 purchase of properties for revi ewing income , renta l

14 reve nue expenses and a l so e xpenses that go o~l ln

15 relation t o che mai ntenance of these p r operties . I

16 wil l also review and ver!fy as necessary any paynenls

17 that we need to make out t o investors for

18 distribu t ions on a month l y or quarte r ly basis .

19 Q Are you als o responsi ble for maintaining the

20 Quic kBooks for the funds?

21 A Yes. And maincajning , we have oulside

22 suppor t tr.at maintaJ.ns 1•1hat - - do -- i:: you mean in

23 terms of maki ng ent ries into Quick3ooks?

24

25

Q

A

Yes , ma ' am .

We have a team of five , i ncluding sta f f


Page 32

1 accountants , bookkeeper and accoun t ing i n terns Lhac

2 make entries into the QuickBooks .

3 Q And do you supervise them?

4 A Yes .

5 Q And who are those persons?

6 A Right now you have William Brown who i s t he

7 staff accountant currentl y . We recently hired or

8 promoted someone to an accounts payable position . Ber

9 name is Betsy Ferguson . \·l e also have a :; accounting

10 intern that scarted about two months ago by lhe name

11 of Pe~ix . I don ' t remember Felix last name and then

12 we just hired another accounting intern , Megan . I

13 can ' t reme:nber her last name right now .

14 Q You mentioned earlier in your testimony that

1~ part of your employment responsibilities include the

16

17

18

19

20

distributions to investors in the funds, correct?

.'I>. Correct .

Q Can you tell us a little bit more about what

you do with respect to that task or item?

A So each month discributions are made out to

2 1 investors based on the return of investment that 's in

22 their documents . I will get the files from Barry

23 Rybicki and his team, they would outline in the Excel

24 spreadsheet the amount that each investor should get ,

25 what their return should be . I would inpul the

I


Page 33

1 information into QuickBooks i f a check is needed to be

2 cut to that investor or I will review and set up t~e

3 direct deposit payments that should go out Lo Lhe

4 investors or even the wire that should go out to the

5 IRA entities .

F. Q So you obtain that information from Barry

7 Rybicki?

8 A His team .

9 Q His team?

:o A Yes .

11 Q And his team includes who?

:2 A Sometimes i t comes directly from - - 1~hat ' s

13 her name Rebecca ,•liebe . R- 1::- B- E-C-C- A, last name ,

14 W- I-E- B-E .

15 Q And what is her title or role?

16

17

18

19

20

21

22

23

24

A I do not know her title .

Q Okay . So this information is furnished to

you in an Excel spreadsheet format?

A

Q

A

Q

A

Q

Ye s .

On a monthly basis?

Yes.

By Mr . Rybicki or one of his team members?

Co~rect .

And based upon that information, you in turn

25 cut checks to the investors for their monthly

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Page 34

1 interest?

A Yes . 2

3

4

5

6

I

8

MR. HARAY : I think she said there were

sometimes other forms of payment .

A We cut checks or sent wires , o r make ACH

payments .

BY MR. ZAMORANO :

Q ACH payments , okay. Those are the three

9 methods that you use to make payments t investors?

10 A Say it again .

11 Q Those are the three methods that you use to

12 make payments?

13 A Yes . on:.y three methods that I can think

14 about right now.

15 Q Okay. What is your present compensation?

1 6 A My present compensation , I believe it ' s

17 132 , 000 per year.

18 Q Do you receive bonuses?

19 A I have not received a bonus to date .

20 Q Are you entitled to a bonus?

21

22

23

24

25

It 1,a s not in my contract .

Okay. Do you have an employment contract?

A I do .

Q Okay. You mentioned a number of individuals

that you supervise, are there any other persons that

f ,

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Page 35

1 report to you that you haven ' t already mentioned to

2 us?

3

4

5

6

A

Q

I\

Q

No .

Who do you report to?

1 report to Bria~ Davison .

And what about to Mr. Rybicki? Do you

7 report to him as well?

8 I\ No , I do not.

9 Q Tell us in your own words a little bit about

:o what you know about the business of the funds , the

11 investments objective and the business purposes of the

12 funds the ones that we mentioned. Just for the

13 record, when I refer to the term funds, I 'm referring

14 to Equialt Fund, LLC, Equialt Fund II, LLC, EA SIP,

15 LLC , Equialt Qualified Opportunity Fund, LP, and

16 Equialt Qualified Secured Income Portfolio Fund REIT,

17 Inc . When I use the term funds , I 'm referring to those

18 entities collectively.

19 A Yeah .

20 MR . HARAY : So:::ry . Are you asking 1,hether

21 she -- whether parL of her duties requires knowing

22 that or just what her impressions are?

23 MR . ZAMORJ:I.NO : What i; er impressions are and

24 what her knowledge is based upon her employment duties

25 of the fund.


1 A

Page 36

Car: you repeat the e~ti t ies because che

2 f~nct!ons are di f feren t.

3 BY MR. ZAMORANO:

4 Q Sure. The first one -- we can take each one

S individually if you' d like, but the first one is

6 Equialt Fund, LLC.

7 A Equialt Fund, LLC overall from =he

8 acco~nting side where it is , we get funds from t he

9 i nveslors , which we record fro~ t he accoun ting s i d e of

10 ch!ngs and Lhose jnvestment funds are in turn used to

1 1 acquire properties . That fund purchase properties .

12 Once the prope r ties are purchased, depending on ~he

13 sta t e 0£ the propert y , t hey may or may not be a r e h ab

:4 that !s done t o the proper ty . I f t~e rehab --

15 MR. HARl'.Y : I ' m sorry . Can I j;.isl ir:tei:ject

16 for a mome n:? ' Cause I thi nk his ques t ion !s to the

17 exte n t yot:' re aware o:: the purpose o: the fund o r the

18 objective of the fund and it sounds jike you ' re

19 descri bing sor e of t he operation s of the fund and

20 those may no t be t~e same things. So j ust want Lo

21 clar ify that she may not be a n sweri ng t he questi on

22 that you ' ve asked .

23 A I know t ~e account ing of t he fJnd , l ike the

2 4 accoun= j ng transac tions : ~ake in relallon t o the

25 fu nd .

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4

Q

A

Q

Page 37

BY MR . ZAMORANO :

You know the accounting aspect of it?

Yes .

Do you know what the business purpose of

5 funds are?

6

7

8

9

l C

1 l

12

A

Q

No, I do nol .

Do you know what the objective -- investment

objectives of the funds are?

A No . I haven' t seen those f unds agreement so

to speak .

Q Okay. Tell me a little bit more about the

operations from an accounting perspective that you

13 were testifying about earlier?

1~ A Okay . So the funds come in f r om the

1 5 Jnvestors , basica l ly those funds are used to purchase

16 or acquire pr oper~ies and also used to rehab lhose

17 properties . Once those properties are rehab and

18 operal ional, we rent chose propert ies out, collect

19

20

21

22

23

24

25

income, r ent from tenants, and at the same time we

also as a operation of the fu nd , we will have to pay

out any maintenance expenses relating to t he

day- to- day operacions of t he fund .

Q And is that generally the case with respect

to the remaining funds that I mentioned as well?

A Genera l ly , yes .


Page 38

1 Q How frequently do you interact with Brian

2 Davison?

3 A IL varies , but on averag e I ' ll say abouL

4 three t i mes a week .

5

6

Q What are his roles and responsibilities?

MR. HARAY : Sorry . Jus t to be -- are you

7 asking about professional interactions about business

8 or jus~ like how often they see each other in --

9

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1 1.

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A

Q

A

Q

time?

A

Q

A

[•'.R . ZAMORANO: No . Business .

MR . HARAY : the business facilities?

~R . ZAMORANO : Business.

MR . HARAY : Okay .

About three times p er week .

BY MR. ZAMORANO :

Three times per week?

Per week .

Do you meet on a weekly basis like a set

Not a set time .

Just depending on your schedules?

Yes . And what ' s happening . Yeah .

Q Based on your interaction with Mr . Davison,

can you tell me what his roles and responsibilities

are for Equialt, LLC?

A What his roles and responsibilities are?

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Page 39

Q What does he do?

A I don 't know exac tly wha l he does , but in

Lerms of i n forma t ion he has requested f r om me , he has

reques t ed primarlly reporti ng i n format i on fo r the

~ ent i ties and t he funds ; a high leve: ma nagement

6 r e por t s .

7 Q What are those high-level management reports

8 that you' re referring to?

9 A Operating reports , includ i ng income

10 statem<m t s for propc r i:ies , twelve month s tatement ,

11 balance s!1ee t, cash f!ow scat ement , balance as a

12 particular poi nt in t ime .

13 Q And do you provide him those reports on a

1-1 consistent basi s or as requested?

1 5 A The re's a week: y report a wee kly act::.vity

1 6 report t hat I p r ovide consiste~t l y .

17 Q And what does that weekly activity report

18 consist of?

19

20

21

22

23

2 4

A I t' s baslcally reports to ~ im or prese n:: to

him all r:ioneys that has corr.e i n a nd all moneys that

has come out for i:he ent::. t ies - - oper a::ing entities .

Q And how is that report generated? Through

what sort of program or software?

That one I have to sieve t h rough the bank

25 statements for those .

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:. 0

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?age 4C

Q Okay.

A Or the bank transaction since the statements

may not be available .

Q Does Mr. Rybicki receive these weekly

activity reports as well?

A No , he does no t.

A

MR. HARAY: You mean from here?

MR. ZAMORANO : F!:Oln her .

Noi:: from me .

BY MR . ZAMORANO :

Q Do you know if Mr . Davison provides him

those reports?

A I f l know what?

Q Do you know whether Mr . Davison provides Mr.

Rybicki the weekly activity reports that you just

mentioned?

I do not know.

18 Q Have you ever had any discussions with Mr.

19 Rybicki about those reports?

20 A I have not .

21

22

23

24

25

Q Has he ever requested that you provide him

the reporting that you mentioned earlier in your

testimony?

A No , he has not . Not to me direclly .

Q Do you know what Mr. Rybicki does at the

'

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Page 41

1 funds?

2 A I do noi: know his di r ect. I know i t has to

3 do with investmen~s a~d Lhat's all.

4

5

6

Q

A

Q

Investments or investors?

I nvestors and :he i r ~nvestments.

And what do you base that knowledge on?

7 A 13ased on e - mail communication to my staf f

8 Lha t is responsible f or that area primarily .

9

1 0

ll

12

:3

14

15

Q E-mail communications to your staff that's

responsible for that area?

A

Q

l'.

Q

A

Yes.

And who are those persons?

I t ' s Will i are Brown.

Anybody else?

t~il.'..ian Brown ?r imarily and r.iyself :.s over

1 6 that area.

17 Q And what does William Brown do exactly?

18 A Righ: now he's basically oversee ing most of

19 the i nvestments. He reviews al l =he inves: ment that

20 comes, he enters i t i n to Quic kBcoks . He's also

21

22

23

r esponsible for i ssuing any retur n of p r incipa l , any

pr i.nciple requesi: that may come in and also cutting

any checks for any cor:1missicn checks that we have to

2 4 c ~ L back based on investment we receive .

25 Q You mentioned commission checks, who is

I

I ,


Page 42

responsible for cutting those checks?

A William Brown .

1

2

3 Q And who does he receive his instruction from

4 with respect to the checks that he has to cut for

5 commissions?

6 A They come from Barry Rybi cki or someone o~

7 his team .

8 Q Are connnissions that --

9

10

MR . HA~Y : Can I just ask?

BY MR . H/l.RAY :

11 Q Do you know that because you're on the same

12 e-mails?

13 A I have access to t he e-mails .

14 BY MR . ZAMORAKO :

15 Q Do you know if the commissions that parties

J6 receive for selling securities of these fund are first

17 paid to Barry Rybicki Support Services?

1 8 A They go to Barry Rybicki . Yeah , BR Support

19 Services .

20

21

Q

P..

And do you know why that is?

I do not .

22 Q And has that always been the case since you

23 worked at the fund -- at Equialt?

24 A Since I ' ve been there t his year , yes .

25 t✓ R. HARAY : I ' m sorry . I d i dn ' t hear .

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Page 43

Since I "ve oeen employed there .

MR . HARAY : Okay .

Since this year .

MR. H/1.RP..Y: Got it .

BY MR . ZAMORANO :

Do you have any information or knowledge

7 about how Mr. Davison and Mr. Rybicki first met and

8 first became involved in business dealings?

9 A No , I do not .

10 Q Do you know how long they've known each

11

12

13

1 1

15

16

17

18

19

20

other?

A

Q

A

Lhe 2112

Q

A

location .

Q

A

No , I do noi: .

Where does Mr. Davison work?

When I s ee him, he works out of our office

West Kennedy Boulevard , Ta ~pa , Flor~da 33606 .

And does Mr. Rybicki have an office there?

No . He doesn ' t have an office at that

Where does he work?

l don ' t know exactly, bu t 1 know the state .

21 Tt ' s out of Ari zona .

22 Q Arizona . Have you ever participated in any

23 joint conference calls with Mr . Rybicki and Mr .

24 Davison concerning your employment responsibilities?

25 A Not concern my responsibi li ties .

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Page 14

Concerning what then that you can recall?

They have had conversation --

MR . HARAY: I ' m sorry . She di dn' t say that

4 she had other calls .

s 6

7

8

9

10

had

Q

calls

A

Q

A

BY MR . ZAMORANO :

Didn't you just say

about other matters?

Ye s. I ' ve had about

What are those other

About the Rt:l 'I' . The

that you had a -- you

other matters .

matters?

REIT quarterly

11 distribution requiremenl per the agreements .

12 Q And what did you collectively discuss with

13 respect to that item?

14 A Year- end bonus that is supposed to be paid

lh out to investors .

16 Q Did you discuss the amount of the year-end

17 bonus that was required to be parade?

18

19

I\

Q

Yes .

Did you discuss what the source of the funds

20 that were to be used to pay those bonuses?

21

22

A

Q

No , I did not .

As a general matter , who gives you

23 instruction or direction with respect to your

24

25

employment duties?

A That 1•1ill come from Brian Davison .

11

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Page 45

1 Q Does he provide you that instruction and

2 those directions primarily through e-mail or orally?

3 A It varies. I don ' t get instructions often .

4 My task is normally known up front , so I can' t say .

5 I t just varies maybe one or two times .

6 Q Okay . When you say your task is known up

7 front, what -- can you expand on that a little bit?

8 What do you mean by that?

9 A No . Jus L a~ accounting controller or an

10 accountant , there ' s an cxpectac ion of wha t your

11 routine responsibilities woul d be .

12 Q Okay.

:i.3

14

15

16

17

18

19

20

21

22

23

A

Q

A

Q

1\

Q

A

Q

Q

Which is cc close the books pr i mari l y.

BY MR. HARAY :

You said close the books and then what?

Yeah . Say ic again .

Did you say something after close the books?

Close the books primarily .

Primarily .

Yes .

Got it .

BY MR . ZAMORANO :

Before you became employed at Equialt, LLC,

24 who was responsible for accounting-related activities

25 for the funds?


Page 1} 6

1 A Accounting- related activities , meaning

2 boo;<;keeping in this respect , would be Michelle

3 Rodriquez Diaz .

4 Q And I don't recall if I asked you if she's

5 still employed.

6 A Yes , you did . She is no longer employed

7

8

9

10

11

12

13

14

lb

16

17

18

19

there .

Q

A

Q

Q

A

Q

A

Q

Q

And do you know where she is employed now?

I do not .

Did you ever meet her?

Yes , I have .

Do you keep in contact with her?

No , I have not .

Do you know why she left?

I do not .

If you have any questions --

MR . HARAY: Can I just have a moment?

BY t,:R, ZAYJORANO :

Is there something that you would like to

20 add or clarify to your testimony?

21 A So Michelle Rodriquez , she was doing the

22 bookkeepi ng , but at the end of each yea r we would

23 oring in or they would bring in an externa l accounting

?4 firm that would basically do the year-end close and

25 the bank reconciliations .

=


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6

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Page 47

Q The year-end close and the bank

reconciliations, correct?

A Yeah .

Q

Q

A

Okay. And who was that outside firm?

l believe it's Dearolf & Mereness .

Do you have any idea how to spell that?

D-E-A-R-O- L- F and I think Mereness is

8 spel l ed M- E- R- E-N-E-S- S .

9 Q Does this accounting firm still have any

10 involvement or participation in any aspect of the

11 accounting for the funds?

12

13

14

15

A

Q

A

Q

I would say, yes. Through

Through 2018 , okay.

The 2018 books .

And their involvement and

2018 they ciid .

participation

16 ended as of 2018; is that correct?

17 A They a~e our tax accountant , so t hey ' re

18 stil l responsib~e for the taxation of the funds and

] 9 tha~ ~nvolves getting the books , I guess , tax ready as

20 well . So year-to-year they have been involved in that

21 aspect .

22 Q And is there a particular person who is in

23 control of that account for the -- this accounting

24 firm?

25 A Mike -- : •m not sure how h i s last name is

Ii


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Page 48

spelt . Mike Zookmiller or something to that effect .

Q

A

Q

And where is this company located?

Tampa , Flori da .

So now who is doing the year-end close and

bank reconciliation? You?

A For 2019 it would be me .

Q Okay. In your opinion , who has the ultimate

approval over the funds bookkeeping or accounting

processes?

A In keeping the accounting processes?

Q Or the accounting process , the process of

accounting for funds book and records?

A I don ' t understand the question.

Q Let me ask the first part of it. Who is

responsible for the funds bookkeeping?

A The f u nds bookkeeping in terms of getting

information in che syscem?

Q Correct.

A That would be me and my team for 2019 anci

forward .

Q Who is involved in making decisions

concerning how certain transaction should be accounted

for in the funds books and records?

A Mhat would be me for 2019 informatio:1 and

forward .

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Q

Page 49

And at the present time what accounting

software program does the funds use to keep track of

income, expenses and other daily transactions?

A From our end we keep track of QuickBooks .

I ' m not sure if Mr . Rybicki ' s team use another

software as well .

Q Do you know if they ' ve ever used any another

software in the past?

n I do noc .

Q And since you ' ve been working with the

funds, have the books always been maintained on

QuickBooks?

A For the funds , yes .

Q And what about for Equialt, LLC?

A Yes . The =und-related accivity .

Q And who are the persons that have access to

the QuickBooks?

A Right now we have five user access , which is

just my accounting team .

Q Does Mr. Davison or Mr. Rybicki have access

to the QuickBooks?

A They do noc , but at the end of each year we

have to send the QuickBooks fi l e to the tax

accountants and they will have access .

Q Tell me a little bit of how that process


1

2

3

4

s 6

7

Page 50

works.

A So al the end of each year once they ' re

ready to prepare the t ax ret~r ns , we wi l.l send t hem a n

accountant ' s copy and a pa s s word , and they wi:l go in

and make any year- e nd ad j ustments thal they feel fit

to make .

Q And the they that you're referring includes

8 who?

9

10

1 1

1 2

13

1 5

16

18

19

20

21

22

23

2 4

25

A Mike Z.i.chmi l ler and h i.s i::eam, Tom -- 'I'om

from 0earolf . I don ' t remember his last name .

Q

A

Q

Okay.

At least ~or 2018 .

We've been going for about an hour , why

don't we take a five-minute break so you can get some

water and get started again?

A Okay. T~ank you.

(A brief recess was taken . )

MR. ZAMORANO: 1,Je ' re back on the record at

approximai::ely 11 : 15.

BY MR. ZAMORANO :

Q Ms. Stoddart, have you been involved in

making any management or business decisions for

Equialt, LLC or any of the funds?

A Ca n you repeat that again?

Q Sure. Have you had any involvement in

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Page 51

l making business or management decisions for Equialt,

2 LLC or for the funds?

3

4

5

6

7

8

9

10

A And then ,,hat do you mean by business and

management? Q A part from your responsibilities and duties

as the accountant controller, have you made any

strategic business decisions for -- relating to the

operation of Equialt, LLC or for the funds?

A No , I have not .

Q Who are the persons that are responsible for

11 making those decisions?

12 A As far as I know, it would be Brian Davison,

13

1 4

my CEO .

Q Based on your involvement as the accountant

15 controller, do you know whether there is a division of

16 responsibilities at Equialt , LLC between Mr . Davison

17 and Mr. Rybicki?

18 A And division of responsibilities, meaning

19 what they are , each person?

20 Q What each person is responsible for doing at

21 Equialt, LLC?

22 A No . I don ' t know that .

23

2~

25

Q Do you know if Mr. Rybicki reports to Mr .

Davison?

A I do not know .

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A

Q

Page 52

Do you know if they make joint decisions?

I don ' t know !or ce r ta i n.

Are there yearly meetings where senior

4 management at Equialt, LLC meet to discuss the

5 business?

6 A I don't kno1•1 . I jus~ started February , so I

7 can' t really say .

8 Q Who is the person who is responsible for

9 financial planning for the funds?

10 Fer t he ~unds itself? A

1 1 Yes. Q

1 2

13

14

16

17

or

is .

A

Barry ,

Q

A

Q

I ' m not s1: re who does t hat . If it ' s Bria n

I don' t I ' m no t sure.

I'm sorry. What was the last one?

If it ' s Br ian or Ra~ry , I ' m not sure who il

Okay. Who is responsible for the financial

18 performance of the funds?

19

20

21

22

23

24

25

A

Q

Performance?

Correct. Profitability.

I n terms of ~onitoring and tracking how the

funds perform?

Q Correct.

A

Q

-

I don' t know for certain .

Do you have any involvement in the analysis


Page 53

1 of the funds financial performance?

2 A In terms of the fund s and the investments ,

3 no . I more oversee the operalions of the properties

4 and s;;uff .

5 Q Do you know who is responsible for analysis

6 of funds financial performance?

7 A I can ' t say directly . I know we have a CIO .

8 And that ' s chief investment officer . So I can't say

9 for certain if he does that .

10 And who is that person? Q

A 11 Tony Kel l y .

12 And he is the chief investment officer? Q

13

14

15

yes.

A

Q

Yes . I ;;hink that ' s what il stands for ,

And in general, what does he do for Equialt,

16 LLC to the extent that you know? I don ' t want you to

17 speculate.

18

19

20

21

22

23

24

25

A

rehabs.

Q

Yeah . That I know of , he oversees the

Who is responsible for overseeing the funds

actual real estate investments?

A I ' m not sure .

Q Okay. Do you happen to know how the funds

real estate investments are titled?

A No .

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1 Q

Page 54

Do you know if the funds are still raising

2 money from investors?

3

4

6

7

Q

A

8 account. .

Yes .

You do know?

Yes.

And are they?

Yes , because I see it comes into the bank

9 Q Okay. And the bank is which bank?

10

11

12

13

14

15

1 6

.l>,

Q

A

Q

A

Q

Ban~ of Amer .i.ca .

BY MR. HARAY :

Is that the same for all funds?

Yes.

Are there any that are closed?

I'm only aware of Bank of America currently .

I 'm saying are any of the funds not

17 receiving investments at this point?

18 A f und 1 is receiving investment , fund II , EA

19 SIP , QOZ a nd t he RF.TT for 2019 at leasl .

20 Q Do you know how much has been raised by the

21 first fund , Equialt Fund, LLC?

22

23

24

25 off

A

Q

A

my

You mea:1

In 2019.

I can ' t

head . Not

give you a number

off the top of my

righl now . Not

head.

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Page 55

Q Okay. And would you answer be the same if I

asked you about the other funds?

A Yeah .

Q Okay.

A Yeah. I have to look at i t .

Q Have you had any discussions with Davison or

Rybicki concerning the need of the funds to raise

additional investor money?

A No , I haven •~.

Q Have you had any type of conversation that's

in anyway coed or related to that subject?

A No , I have not .

Q Do you know who Diane Dutton is?

A No , l do ~ot .

Q Have you ever heard that name before?

A No , I have not .

Q Does Equialt, LLC or the funds have any

board of directors or advisors that you know of?

A Equialt , LLC or the REIT , or the QOZ? I

20 have seen the REIT and the QOZ documents . Thal I can

21 tell you that there is a board there . For the fund , I

27. cannot say?

23 Q Okay. So for the REIT and for the QOZ , yes,

24 you believe they have a board of directors?

25 A Yes .

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Q

Page 56

And do you know who those persons are?

A Br i a n Davison and Barry Rybicki I know in

particular. There may be more , but : can ' t recall .

Q Okay . Besides the accounting firm that you c. mentioned earlier, does Equialt, LLC engage any

third-party business our financial consultants? 6

7 A Financial consultants outside of audi tors or

8 tax, not that I ' m aware of .

9 Q Okay . During the course of your employment,

lC have you had any contact with any prospective

11 investors in the funds?

I:-ivestors directly? No , I :1ave not . 12

13 Q Either existing or persons who were desiring

14 to invest in the funds?

lS

16

A

Q

No , I have not .

Do you know who the persons are that are

17 responsible for soliciting investors for the funds?

18

19

A

Q

Soliciting it? No , I do not .

Do you know who is responsible for

20 communicating with existing investors in the funds?

21

22

23

24

25

A

Q

A

Q

A

That would be

Do you know a

Yes , I do .

Who is Andre

I know he is

Barry and his team .

person name Andre Sears?

Sears?

-- he works i.n the capacity of

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Page 57

1 Barry so to speak, but he ' s ove r l ike - - h e gets fu nd

2 I I investment so co speak ; like the middleman between

3 us a nd t he investor s . That's how I know to pu t it

4 :Oest.

5 Q Middleman between the funds and the

6 investors?

7 '!'hat ' s rw,, I :Oest know how to put i t. i•,J e

8 would get the request a nd he will noti f y us of any

9 investors . Any com:r.issions that need Lo be paid ,

10 t hose would come through Mr. Sears , yeah, for fund II .

11 For fund II? Q

12

13

1~

15

16

17

1 8

19

with

A

Q

A

Q

A

Q

Mr.

.n.

'!e s, only.

Only for fund II?

'!es .

Not for any other funds that you know of?

I have n ' t see n i t for the o::hers .

Do you have any interaction or communication

Sears?

fly e-mail probnbly . Just by the

20 communicat i.or- •,•1here he makes L~e request a1:d cha :: ' s

21 it.

22

23

7.4

Q And what request would that be?

Just le::ting us know that an investor has

made a deposit , what ::ha t dale i s and s1hntever

25 commission is due .

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Page 58

Q Okay. And he sends you that information

directly; is that correct?

A He s e nds it to our e - mail address that we

have called Commissio~ Equialt .

Q Have you ever heard of a company called the

Picasso Group?

A No, I have not .

Q Do you know if investors are provided

account statements?

A I do not know.

Q Have you had any involvement with the

marketing or promotion of the funds?

A No , I have not .

Q Who is responsible for marketing or

promoting the funds to your knowledge?

A I can ' l say for s u re .

Q Do you know how the fund solicit investors?

A No, I do not.

Q Have you had any involvement in drafting,

reviewing, approving any sales or marketing materials

provided to investors?

A No , I have not .

Q Have you seen any of those materials that

have been provided to prospective investors?

A And can you be specific about the marketing

-


Page 59

l materials?

2 Q Sure. Like a fax sheet or a brochure of any

3 type?

4 A I ' ve seen the PPM as I' ve been ~nvolved in

5 it for the RE: T .

6 Q Okay. Have you seen the PPMs for the other

7

8

funds?

A I ' ve l ooked at the one for the QOZ somewhat ,

9 yeah, but noc fo r the funds . I ' m not sure what it is.

10 Q Not for the other two?

11 .u. No . Just for the QOZ and the REIT I ' vc seen

12 that one .

13 Q Okay. And was there any particular purpose

J 4 why you reviewed the PPMs for the REIT and for the QOZ

15

1 6

17

18

:. 9

20

21

22

and not for the other three remaining funds?

A When T came on board originally it was to

help with the REIT and also those two entities are

audited , so I have to pu l l that information to provide

to the auditors .

Q Okay.

BY MR. HARAY:

Q When you say when you first came on board,

23 are you referring to the period when you were hired

24 under your own business?

25 A When I was hi:ed by Taylor White as a

'

'

,,


Page 60

1 consultani: .

2

3

4

5

6

7

8

9

Q

A

Q

Q

Taylor White?

Yes .

Okay.

BY MR . ZAMORANO :

We discussed briefly the commissions that

are paid by the funds for the sale of its investments,

now are you familiar with what the cormnission

structure is?

10 A I am aware of the structu~e because we

:.. 1 normall y verify that the commission pald on the amount

12 is correct . I can ' t remember the exact percentages

1 3 right now since chat cask was delegated, but we

14 normally have to verify that what is paid out matches

15 what is i nvested .

16

17

18

19

20

21

22

Q

A

And who is that task delegated to?

It ' s delegated to William Brown .

Q Based on the interaction that you have had

with respect to this issue, do you know what the

percentages are that are paid for the sale of the

funds investments?

A I know that it ' s a percentage of what the

?~ investment is . I cannot say to the exact numoer from

24

25

memory .

Q Okay. Does it vary depending upon who is

.


Page 61

1 selling the investment?

2 A No , it does not .

3

1

5

6

7

8

9

] J

Q

A

Q

Okay.

Not that I ' m aware of .

Have you had any involvement or

communications with the persons who sell investments

in the funds?

A No . I 've on l y commLnicated with Barry and

Andre Sears.

Q Do you know whether the funds pay a

11 management fee to Equialt, LLC?

12 n Not tha t I ' m aware of .

Q

A

You're not aware of that?

And when you say funds , you mean management

:s fee? We do a asset management . If that ' s wha t you 're

16 referring to , that is done .

17

18

19

20

21

22

23

24

25

Q

A

Q

Yes.

Yes .

What is that? Do each of the funds pay an

asset management fee to Equialt, LLC?

A Yes .

Q Okay. Do you know what that monthly

management fee is?

A It varies. :r ic ' s an asset management fee ,

property management fee , acquisition management fee ,


Pa ge 62

1 if it ' s the resort , we have a veri fication t~at i~ has

2 t o be wi ~hin che benchmar k ra:1ge, bul I don ' t ~now i t

3 of fhand . It's .:. n a automa t ic spreadst:eel or

4 something .

5 Q Okay . You said -- can you go through those

6 items?

7

8

A

Q

So t here' s an a sset manage:nent fee.

That is paid by the funds to Equialt, LLC,

9 correct?

10

1 1

12

13

14

15

P,

Q

A

Yes .

But you don' t know the amount?

Not offhand. I know it ' s wi t l1i n the range

of -- a certain range. There ' s a l so a propert y

manage:nent fee.

Q Property management fee . Okay .

16 A Imel there ' s norma l ly a n acquisi.t.ion and

17 disposition f ee and also a prope rty management fee .

18 And t his is d i f!e r ent from the funds and Lhe QOZ , and

19 t he ~EIT .

20 Q It ' s different how? I 'm sorry .

21 A The QOZ and che REI'!' . ~/hen you refer to 1

22 funds , are you i nch:d ing the KETT a.:1d Lhe QOZ as 1-1eil ?

23 Q Yes.

24 A Okay . So :or ~he RE:T i t 's di=fercnt. The

25 RE IT it ' s per -- it ' s going to be le~ percent. That

-


Page 63

1 one I wouldn ' t speak to . It ' s ten percent if it ' s a

2 sing le story house , b u l it ~ay be different if it 's

3 multi property house . And that "s basically on the

4 rental income . So thac ' s not a

5 funds invested itself . For the

percentage of

f~nds though,

the

~t •s

6 going to be what I mentioned before .

7 So for the funds that you're referring to Q

8

9

10

11

12

are the

A

Q

A

Q

Equialt Fund l , Equialt Fund II and EA S I P .

EA SIP?

Yes .

Okay. So I just want to make sure that I

13 got them all down correctly. Asset management fee?

14

15

16

17

18

1 9

20

A

Q

A

Q

A

woul d

fee .

Asset management fee.

Property management fee?

The ~e•s a property management fee .

Acquisition fee?

Acquisition and disposition fee and there

also be a projecc or construct ion management

21 And that's with respect to Equialt Fund, Q

22 Equialt Fund II, and Equialt Fund III or EA SIP?

23 Yes . EA SIP, Equialt Fund I and Equialt

24 ~~nd II .

25 Q Okay. And there ' s a different structure


Page 64

1 with respect to the REIT and QOZ; is that correct?

2 A Yeah . With the REI T or QOZ , the xanagement

3 fee at this time , the proper::y management fee , Lhat ' s

4 t he one I can recal l. I c will be :o percent basicall y

5 for single f amily homes . That ' s the prope::Ly

6 management fee . The asset management fee for those is

a little more different as well. It ' s based on

8 whatever is in the PPM or the cont::act agreement that

9 we have , the operating agreement for those .

10 Q Okay. Do you know how Mr . Rybicki and Mr.

11 Davison are compensated by Equialt, LLC?

12 A If I know how Lheir compensation i:c

13 dete::mined?

14

15

16

17

18

19

20

21

22

23

24

25

Q And what their -- how it's determi ned and

what it is?

A l don ' t know offhand whac !tis. I have

access to ,ll.DP, but I do not know how the compensation

is arrived at .

Q Okay. And you say you have access to ADP,

what do you mean by that just so that the records is

clear?

A ~ust means that I can go i n there and what

eac h person is - - each person sa l ary is . And he 's

paid ~h rough staff payroll.

Q And --


1

2

3

4

5

7

8

9

Q

A

Q

A

Q

A

Q

BY MR . H/\RAY :

Is that a payroll service?

Yes . ADP is a payroll service , yes .

BY MR. ZAMORANO :

ADP is a payroll service, correct?

Yes .

And you have access to ADP?

Yes .

Page 65

And have you -- can you tell us what the

10 yearly compensation that Mr . Rybicki and Mr. Davison

ll receives based on your review of the ADP documents?

12 A Not from memory .

13 Q Okay .

14 - know Brian i s on I t, but I don't recall i f

15 Barry i s on il .

16 Q Okay. Have you had any participation in

17 approving a particular investment by somebody looking

18 to invest in the funds?

19

20

21

22

23

24

25

A

Q

A

already

though.

Q

A

-

No , I have not .

Who is involved in that process?

I ' m not s ~re . I normally get the documen~s

approved . It will come from Barry's team

From Barry ' s team?

Yeah. He will send me the documents already


1

2

3

4

5

6

7

approved and stuff .

Q And the documents being the signed

subscription agreement?

n Subscription agreement .

Q

A

Q

Accredited investor questionnaire?

Yes .

Anything else that you can recall?

Pa ge 66

8 .r,, I rememoer c:he subscription agreement as you

9 said and questionnaire . T remell\be::: those two .

1 0 Q Okay. And if it's an investor that ' s

11 investing in the debenture, who would you also receive

12 the debenture?

13

14

15

16

17

18

A I don ' t recall seeing a debenture at this

time .

Q Do you have any involvement in deciding how

an investor's money is going to be used by the funds?

A No , I do not .

Q Who is responsible for that, if you know?

19 A I can ' t say for certain, bu~ I only can

20 assume that it ' s going to be Brian and the chief

21 investment of f icer .

22 Q Okay. Have you had any involvement in

23 deciding whether the funds will make monthly interest

24 payments to investors in the funds?

25 A No , I have not .

= -


Page 67

1 Q Have you ever been involved in generating

2 financial projections for the funds?

3 A ~ot for the investors .

4 Q Internal?

S A Internal just in terms of maintenance and

6 rental income cash flow projections .

7

8

9

11)

11

12

13

Q Do you know whether investors have received

financial projections for the funds?

A I do not know .

Q Do you know how the funds performed in 2018?

A ?.019?

Q ' 18.

A ' 18 . When you say performance , do yot: mean

1,; like operations? Or do you nean the investments?

15 Q Financial performance meaning, are they

16 making or losing money?

17 A We have the tax return based on whacever lhe

18 adjuslments ~a ke at t he end of the year , but co speak

19 to the numbers directly, I cannot . I ' ll have to refer

20 to that or something .

21 Q You have to what? I'm sorry.

22 A I have to refer to those documents . J'

23 cannot say offhand .

24 Q What documents would you need to refer to?

25 A Just like their tax return or che income

- -

I


Page 68

1 statements and all that stuff for the funds . That

2 would give us the performance.

3 Q How about for 2019?

4 A 2019? We are still behind trying to get

5 caught up on our boo~s , sol sti l l would have to run

6 like the income sLatements and the cash flow

7 projections from out of QuickBooks .

8 Q Okay. So what are the documents that you

9 need to generate in order to determine whether the

10 funds are being financially profitable?

11 n We could run the income stalements , che

12 balance sheet or cash flow projec~ion.

13 Q Okay. And you ' re still working on that?

14 A We have it updated somewhat , but we still

15 going back and making 2019 adjustments .

:6 Q What are some of the adjustments that need

17 to be made for 2019?

18 A For 2019 we have reclassify t~ansactions

1 9 that may be misclassified . There are items Lhat may

20 come into the bank that haven ' t been identi.fied and

21 the time I would have to take to research to find ouL

22 what it is . Some of it is due tc the bookkeeper who

23 is just entering the data ; he ' s not sure what it is.

24 Q But based on your access to the funds'

25 financials, you can ' t tell me at the present time

-

I


Page 69

1 whether the funds are generating or losing money?

2 A I ' l l have lo look into QuickBooks . And know

3 you say generating and losing, is it -- are you

4 referring to t he net income or the operating income?

5

6

7

8

9

10

11

12

13

14

15

:. 6

:. 7

18

19

20

21

22

23

24

25

Q Net income.

A I have to look on QuickBooks de f initely .

Q What about historically? How have the funds

performed historically over the last five years , if

you know?

I' ll have to refer Lo QuickBoo ks . We have

mult:ipl e funds, ,,.;hen l c a me i n I just started focusing

on 2019, but if I run it in QuickBooks , Lhen it should

be able to tel l us what is there h i si:orically if the

information is entered accuratel y .

Q Is there any reason to suspect that the

information hasn't been entered into accurately?

A Well , yes . A bookkeeper basically was there

for some period of time , the externa l acco~ntants that

came i n as much as t hey cou l d made eni:ries based on

the knowledge that they were provided . Bu t from what

I ' ve seen , there have been information that they

weren ' t sur e what it was a nd it appears that they just

basically classified it to the best of their ' cause

the bookkeeper wasn ' t sure how Lo do it or had the

information to provide them on what it really was .

-


Page 70

1 Q And for what period of time would that have

?. occurred?

3 A Right now l can ' t say how far it has gone

4

5

6

7

8

9

10

11

12

13

back . Fi:om what I ' ve jusi: seen just glimpsing on some

stuff from 2017 at least , I ' ve seen th i ngs thai: have

been misclassified.

Q 2017 backwards or

A From 2017 forward that I ' ve seen , I ' ve seen

things that are misclassified .

Q

A

BY MR . HARAY :

Is forward towards the current?

Towards t he current year .

BY MR . ZAMORANO :

14 Q And what ' s -- can you give me some examples

1~ of things that have been misclassified?

16 A A lot of things have been placed in repairs

17 and maintenance that were actually rehab cost thac

18 should have been capitalized .

19 Q Anything else that sticks out in your mind?

20 A Funds deposits may have co~e in that are

21 lnveslors funds tha t have been placed otherwise.

22 There may have been placed in Ask My Accountani:, they

23 may have been placed in a loan . It ' s just being

24 uncertain what it was at the time .

25 Q Since you became the accountant controller

-

I


Page 71

1 for Equialt, LLC, have you discovered any

2 irregularities in the accounting for the funds?

3

4

5

6

A

Q

A

Q

Besides the Lhings tnat are misclassified?

Right?

I haven ' t .

Okay. Do you happen to know what the

7 current value of the assets held by Equialt Fund, LLC

8 is?

9 A No, : don ' t. We track it cosi:: in

10 QulckBooks , so we don ' t reflect the value .

11

12

13

1 4

15

well?

Q

A

Q

A

So how is it accounted for? Just by cost?

By cost of t~e asset or purchase cost .

And is that true for the remaining funds as

16 To your knowledge, have the assets ever been Q

17 valued by an independent third party?

18 A For the REIT and the QOZ , as a part of the

19 audit procedures we had to get a third party valuator .

20 So in that respect , we have documents on that

21 valuation . Just for those Lwo ent i ties I can speak

22 to .

23

24

25

Q Okay. And with respect to those two

entities, who did the valuation?

A I don ' t remember their name righc now.

- -

11


1

2

3

4

5

6

7

8

9

10

1 1

12

13

14

~age 72

Q And for the other funds, you are not aware

of any independent third party having performed an

evaluation of the assets that are held by the funds?

A Not thac I am awa r e of .

Q What about internally? Has anybody

attempted to value the assets internally has opposed

to just simply the valuation based upon the cost or

the acquisition?

A We have a software that uses - - _ guess

Appfolio . No . That does the rent.

Q What ' s it called?

A No. There ' s a Appfolio software that we

use .

Q Appfolio?

15 ,-,,,. Yes . But that ' s more .:.n terms of the rnarkec

16 r ent . I ' m just th i nking ouL loud . I ' m sorry .

17 Q That's okay.

18 In our QuickBooks in our vendor secLion the

19 most I ca n speak to is , that I ' ve have seen vendors

20 with the name valuation be~ind .:. t, sot just can only

21 assume that they are the ones that we use for

22 whatever . But my accounts payable person can probably

23 speak to that more .

24 MR . HARAY : May I ask?

25 BY MR . HARAY :


1

2

3

4

6

7

8

9

Page 73

Q Is -- the question of valuation of the

property is for the fund -- the other funds, not the

QOZ or the REIT, is that something that ' s part of your

responsibilities?

A No . We j ust pay the bills from our section .

MR . ZAMORANO : \'lhy don ' L we take a

five -minute break and we ' ll decide on lunch?

MR . HARAY : I vias going to ask you , jus;; for

mental p l anning , do you know when you want to break

lC for l unch?

11 MR . ZAMORANO : Yeah . We can -- why don ' t we

12 break for lunch now? How long do you guys think? Off

13 the record .

14 (Whereupon , a luncheon recess was taken . )

15 A f' T E R N O O N S E S S I O N

16

17

18

19

20

21

22

23

MR . ZAMORANO : vie ' re back on the record at

10 tiil 1 .

BY MR . DBS :

Q Good afternoon, Ms. Stoddart.

A Good afternoon .

Q My name is Mark Dee just in case you forgot.

Hope lunch was well.

I just want to go back to your website, CPA

24 Stoddart.

25 A Mmm- hmm .

-

I


1

?.

3

~

5

6

7

8

9

10

11

Page 74

Q You have a designation on that website for

QuickBooks ProAdvisors, is it still active?

A I think I need to renew that . Now I'm

actual ly doing you have to keep renewing it, so I ' m

actually doing the test r ight now for t hal .

Q Okay. And we'll mark this as Exhibit No. 3,

Bates number Equialt00003202.

A Thank you .


identification.)

BY MR. DEE :

12 Q Is this the type of report you would create

13 for Mr. Davison?

14

15

16

17

18

19

20

as

A No .

Q Do you know who created this report?

A ~o , I do not .

Q Have you ever heard this report referred to

the Google spreadsheet?

A No , I ~ave not.

Q From looking at it, does it give you any

2 1 idea of what it is?

22 A I t just l ooks like a proforma report from

23 just the heading .

24 Q Okay. But you have no idea who created that

25 report?

.I


1

2

3

5

6

7

Q

A

Q

Page 75

No, I do not .

BY MR . HARAY :

You said proforma report?

Yes . It has i t at tne top .

BY MR . DEE:

Would you mark that as Exhibit 4.


8 identification . )

9 BY MR . DEE :

10 Q What you're being handed is Exhibit 4. This

11 originated from Bates number Equialt00004473. The tab

12 on the spreadsheet for this was the Equialt fund

13 property list.

1 ~

1 5

16

17

18

19

Have you ever seen this before?

A No , I have not.

MR . HARAY : Do you mean has she ever seen a

printed version like this? Or does she recognize it

from anything? I mean this is a big printout of

paper .

20 BY MR . ~EE :

21 Q Have you ever reviewed spreadsheets of the

22 residences that are allegedly owned by Equialt?

23 A The spreadsheets of the -- yes .

24 Q Okay.

25 A I've looked at those , yeah .

'


1

2

3

4

5

6

7

8

9

10

11

1.2

13

14

15

16

Q

Page 76

All right. Within those spreadsheets, have

you ever reviewed or examined, or updated any

spreadsheet of that nature?

A No , I have not.

Q Okay. You have nothing to do with the

assets of the portfolios, if you want to call them

that?

A

Q

I enter the purc~ases of the assets .

Just in -- I 'm sorry. Go ahead.

A Yeah . In Qui ckBooks , but jus l based on th i s

information on the sheet , I do noc update the sheet -

these sheets .

Q Do you know who does?

A Someone in property management or in that

department t.hat I ' m aware of .

Q Are you aware of anybody in property

17 management that we could contact so we can get an

18 explanation?

19 A I would scart with che chief investment.

20 officer Tony Kelly . He would be more fami liar .

21 Q Okay. Would you mark this as Exhibit 5.

22 (SEC Exhibit No. 5 was marked for

23 identification.)

24 BY MR. DEE :

25 Q Are you familiar with the statement cash

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Page 77

1 flows?

Yes , I am . 2

3

A

Q All right. This is for Equialt Fund, LLC

4 fund 1 as it ' s been called?

S A Ye s.

6 Q All right. In layman's terms , can you tell

7 us what the statement of cash flow is?

8 A The statemenL o f cash flow basically

9 summarize the money that goes in and out of the

·10 company in three main categories ; i n your operating,

11 investing and also financing . So it tells you the

12 amount of money that i s spenL on financing activities ,

:3 investing activities , operating activities .

14 Q Okay. This particular fund, has it ever

15 been audited?

16 A Not that I ' m aware of .

17 Q And the QuickBooks that were produced to the

18 SEC that helped me create this report, were there any

19 changes prior to sending it to us, like in

20

21

22

23

reclassifying assets,

MR . HARAY :

BY MR . DEE :

liabilities, expenses, revenue?

Since when? Sorry .

Q Prior to producing it to the SEC, were there

24 any changes to or mis- -- reclassifications to assets ,

25 liabilities, equity, revenues or expenses?


Page 78

1 MR. HAR.11.Y: I• m sorry. Are you asking f rom

·) tne day you asked for it or from the da t e i t was

3

,]

' >

genera.:ed?

MR. DEE: The day we asked for i t.

MR. HP..RAY: Okay.

6 P.. Daily or weekly ,,e normal l y reviewing the

7 books to r eclassify, so ic's possible. 'Ca use we ' r e

8 constantly reviewing and reclassify transactions.

9 BY MR. DEE:

:.O Q Anything significant?

11 A Repairs and maintenance as l mentioned

1 2 be f ore. A lot of the stuff in repairs should have

1 3 been capitali zed because it was rehab expenses. Some

1 4 clean up. We have found tha t items thac were actually

15 deposits were probabl y be an expense er someching like

16 tha t. Inves t or funds may have been put as ask my

17 accountant or something else , and the n we had to

18

19

20

reclassify in those cases.

Q Anything that you would call material?

A I think the repairs on maintenance

2 1 accumulated would have been that. Materia!ly, I know

22 that we had to reclassi fy const ruction in progress ,

23 works that were done , and we had to move those to

2 4 fixed assets, but woul d sti l l fall in the balance

25 sheet, yeah.

-

' i

'

:

,,


1 Q

Page 79

Okay. Let ' s take a look at net income.

2 There was a discussion earlier with respect to

3 performance. This particular report is all

4 transactions?

5 Yes . A

6 And so you understand what all transactions Q

7

8

0 _,

10

11

are?

A

Q

A

Q

So is it from inception?

Yes, ma ' am.

Okay .

All right. You can see what net income or

12 net loss was since the inception?

13

1 -1

15

16

17

18

19

20

21

2?.

23

A

Q

A

Q

Q

Q

A

Q

Yes.

Would you read that number for me?

1 think it ' s 2 . 7 million .

Is it 27 million?

I ' m counting the zeros . Yes , 27 million .

Okay . Mr. --

BY MR . HA~AY :

Which number is 27 million?

A~ the top here , net income .

BY MR . DEE:

Net income, net loss.

24 You were asked by Mr. Zamorano earlier about

25 performance .


1

2

P..

Q

Page 80

Mmm- hmm .

If you could have an opinion or if you had

3 an opinion on the performance of the fund?

4 A Yes .

5 Q What would be your opinion of this fund with

6 a net loss of $27 million since inception?

7 A Just --

8 MR . HARAY : She said -- sorry . I think her

9 answer befor e was tha t she did not have a n opinion o r

10 have knowledge about financia l performance of the

11 funds .

12 MR. DEE : But she said she -- if she had the

13 net income or she had the documents from QuickBooks

1 4 she could .

15 BY MR . DEE :

16

17

18

Q

A

Is that correct?

Mmm-hmm. Yes .

MR . HARAY : She didn ' t: say she would have an

19 opinion . She said there could be some jnformatjon i n

20 those reports .

21 BY MR . DEE :

22 Q Can you make any opinion based on the net

23 loss of $27 million?

24 A I t ' ~ hard because first of all -- what date

25 exactly? I ' m not sure that we gave you t he QuickBooks

I

I


Page 81

1 file as at , but these are saying through November 5.

2 I know personally that the books have not been

3 final:'..zed through November 5 just in terms of

4 reviewing , doing the background and so on .

5 : can speak definitely for 2019 , but based

6 on what ' s here , it ' s showing that net income is at 27

7 million and net income i n general would show that i& ' s

8 n l oss . Basically the company is operating as a loss

9 just based on what ' s on this report .

10 Q Okay. Let's go and take a look at revenue

11 and expenses to see how this net loss was developed.

12 Would you mark this Exhibit 6.


14 identification.)

15 BY MR . DEE :

1 6

17

18

19

20

21

22

23

24

25

here?

Q

A

Q

A

A

Q

A

Do you see Exhibit 6 in front of you?

Exhibit 6 , yes .

What is Exhibit 6?

Exhibit 6?

MR. HARAY : Sorry . Is this 6 thal you pu&

It says profit and l oss .

BY MR . DEE: :

All transactions?

If it ' s all transactions?

- -


1 Q

Page 82

Do you see the two words all transactions

2 underneath profit and loss?

3 A Yes . Profit and l oss all transactions .

1 Q All right. And same as before, all

5 transactions being from inception?

6 A Yes .

7 Q All right. Total rental income, could you

8 tell me what that number is?

9 A 9 . 2 mi llion .

10 Q Take a look at Resort income other?

11 A Ye s . 2 . 3 mil l ion .

12 Q Okay. What ' s the total income from

13 inception?

J 4 A It has 11 . 9 mil l ion .

15 Q Let's go to page 21 of the exhibit . What ' s

16 total other income?

17

18

A

Q

Page 21 , 16 , 000 .

Okay. And that's derived from those

1 9 categories above it, correct?

20 A Per t his sheet, yes .

21 Q Okay . From 11.9 and you add 16 , 000, can we

22 deduce that this fund generated $12 million in revenue

23 from the inception until the day that this was given

24 to us?

25 A It ' s kind of hard for me to deduce . Just

_;


Page 83

1 looking at I' m seeing t here ' s a loss on noles

2 receivable of $403 , 000 that i s reflected on the other

3 income . I guess all of these things i s - - just having

4 me being curious about where these numbers will come

5 from . But just based on chis report , Lhat ' s what it ' s

6 showing . But a lo t of t he s e arc still pending r evi ew .

7 Q A lot of these are pending review starting

8 when? When did the revi ew start?

9

10

1 1

12

13

14

15

16

17

18

19

20

21

22

23

P..

Q

A

Like I have started from 2017 .

Let me rephrase it .

When did you start reviewing the QuickBooks?

I came here , I started February 2019 , yes.

Q Okay . And that's when you started?

A Yes .

Q And do you know if there were any revi ews

done prior to your employment?

A Based on the year-end adjustments t hat

Dearolf & Mereness have made, : know tha l they

altempted to stari:. the review, but when they f i nish

the tax return at the end of the year, they ask us t o

revisit some of t he transact i ons that Lhey were

uncertain about .

Q Okay . So from 2011 until your appointment

24 with Equialt, the fund stayed as it was and ran it was

25 and the results were as it were?

--


1

2

A

Page 84

Yeah.

MR. HA~.Y: Can you rephrase that? I don ' ;;

3 understood the question.

1 MR. DEE: She understood it . She said, yes . , .. She responded .

MR . HA~~Y : No . No . No . No. ' Cause we

have c:o understand the question.

8 KR. DSE: What didn ' t you understand, sir?

9

10

11

i ?.

13

A

A

MR. HARAY: Maybe she can read ;.t back.

If the funds ran --

MR . HARAY: Not you. Sorry.

Sorry. Okay. Go ahead.

(The last question was read back by the

11 court reporter .)

15 MR. HARAY: What is that -- any of that

16 referring ~o?

17 MR. DEE : Refer

18 KR. HARAY: She said before she got to

19 Lhcre.

2. 0

21

22

did --

MR . DSE : Befor e she was -- before she

MR. HARAY: The fund ran as it ran. I j u!;L

23 don ' t understand the question.

24 MR. ZAMORANO : Both of you can ' t tal k o ver

25 each other for her.


Page 85

1 So what ' s your question?

2 MR. HI',~AY : He ' s saying for the period of

3 time before Ms . Stoddart was there , so before she

4 would have any firsthand information , he ' s asking her

5 if the fund ran as i c ra n, which just seems like a

6 circular question. I do~• t undersLand what he ' s

7 asking.

8 BY MR. DEE :

9

JO

11

Q From 2011 from inception

MR . HARAY: Ri ght.

l3Y MR . DEE :

12 Q until you were hired, Mr. -- Ms.

13 Stoddart, these funds were reported as they were

14 without any changes.

15 MR . HARAY : How would s he know that?

16 MR . DEE : Wel l , whe n she came i n she took a

17 look at the books and she started her review .

18 MR. IIA:'<P..Y : Okay . Maybe ask her the

19 question then.

20 BY ~R. DEl :

21 Q All right. When you were hired and you

22 looked at the fund , this fund in particular, and you

23 had any questions, did you ask anybody how this was

24 performing or how the results came about?

25 A The results or --


1

2

Q

A

Page 86

Of the fund.

Or a ny particular transactions, did 1 ask

3 about it?

4

6

7

8

9

:. 0

Q Well, right now I 'm just -- we ' re just

talking about revenue.

A Yes .

Q That ' s all we're talking about.

When the revenue came in , did you have any

questions about it?

A Ko , because once I came in : started

·1 focusing on 2019 primarily . We start goi ng back to

:..2 make a few reviews in 20:..8 , prio::: years , but my focus

13 has primarily been on 2019 and the REIT and t he QOZ.

14 Q Did Mr. David who you report tell you that

:s there was anything wrong with the books and records?

i6

17

18

A

Q

-P..

He suggested tha t he may not be as accurate .

And how did he suggests that?

Dearol f & Mereness 1•1hen they reviewed it ,

19 they made that implication .

20 Q Did Dearolf & Mereness provide any

21 documentation that said that the books and records may

22 be inaccurate?

23 A Looking at the historical transactions , I

24 saw where they had to make numerous year- end

25 adjustments .

'

'

i

I


1

2

3

6

7

8

Page 87

Q Okay. You testified before that that ' s what

Dearolf & Mereness did, they made year-end

adjustments.

A Yes .

Q Were those year-end adjustments for

corrections or were they for preparing the books for

the next year and the taxes that they were going to

prepare?

9 A It sounds like a dual thing to me , the same

1 0 thing . ' Cause to get the taxes prepared, they had to

11

12

::.3

14

15

16

cio some year- end adjuslments a s well .

Q Okay. Since they do the taxes, they make the

year-end adjustments?

A Yes . And I believe they were also engaged

to do accounting review as we l l .

Q But they filed the taxes based on those

17 records.

18 MR . HARAY : Well --

19 BY MR . DEE :

20

21

22

Q They filed the taxes based on --

MR . HARAY : I don ' t know you ' ve establish

any basis for her to know what they did before s~e

23 arrived there .

24 BY MR. DEE :

25 Q Did you review the tax records when you were

-


1

2

hired?

A

Page 88

I looked on 2018 somewhat , but no~ in

3 detail .

4 Q Okay. And what did -- what records were

S used to produce the 2018 tax records?

6 A They were provided 1•1ilh the QuickBooks

7

8

9

:. 0

:. 1

12

13

files .

Q And those QuickBooks file -- QuickBooks

files , were they the files that were used to not only

prepare the taxes , but used to determine what the

revenue was?

A T~ e file chat they provided at the time ,

yes .

14 Q Okay. Now, can we say that the fund

15 generated $12 million in revenue from inception?

16 MR . HARAY : Can you clarify what you mean by

17 can we say? I mean --

BY MR. DEE : 18

19

20

Q Can we agree that Equialt Fund -- Equialt

Fund , LLC generated $12 million in revenue from

21 inception?

22 MR . HARAY : Are you asking i f this document

23 reflects that?

24 BY MR . DEE :

25 Q Does this document reflect that Equialt

-


Page 89

1 Fund, LLC generated $12 million in revenue?

2 A It reflects i t, yes . I t does re f lecL $12

3 mi l lion in -- yeah , since inception , buL not inception

4 through November 5, 2019 I cannot say .

5 Q I'll accept that.

6 A Yeah .

7 Q Let's look just slightly above that to total

8 gain/loss on property sale. We'll start looking at

9 expense and losses, okay?

10 According to the document --

11

12

'P.

Q

On what page you 're seeing gain and loss?

21.

13 A Okay .

14 Q We ' re just above interest income, loss on

15 notes receivable. It shows for total gain and loss on

16 property sales $31,423.48. Is that what the document

17

18

19

20

21

2?.

23

says?

A

Q

A

Q

$31,423 . 48 , yes .

That ' s a loss, is it not?

Yes , ii: is.

Thank you.

MR . HARAY: A loss compared to wi1at?

MR- DEE : It ' s a loss on a ga i n and sale of

24 properties?

25 ~R . HARAY : Is that the question?

'


1

Page 90

MR . DEE : Yes , that's what -- that was the

2 question .

3 BY MR . DEE :

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Q And, Ms . Stoddart, you understood me didn ' t

you?

A :vtmm-hmrn .

Q Okay. You said Mmm-hmm, but make sure that

the court reporter picks that up.

'.0!R . HARAY : Do you mind if I ask just co

make it more complete whether this document reflects

the value of the real estate holdings?

A Oh . This one , it doesn ' t reflect the va lue .

The gai n or l oss is reported based on the cost and

includes appreciation and all olher adjustments . So

in QuickBooks we only report the cost of the asset ,

not at the fair market value .

Q Correct . I wasn ' t looking for market value.

Let's go to page 20.

A What page?

Q Page 20 of the same exhibit.

According to this document, total management

fees taken or total management fees paid was

$5,654,570 . 19; is that correct?

P.. Yes , by this document .

Q Page 22 of the same document, the same

II

'


Page 91

1 exhibit . Based on that document, can you tell me what

2 the amount of discount fees were taken?

A Discount fee on the document is 1 . 1 million .

4

5

6

7

8

9

10

Q

A

Q

.'A.

Q

P..

Q

Due diligence?

Due diligence is 835 , 000 .

And total other expenses?

4 . 6 mi J.lior. .

Based on this document?

Yes .

All right. One more and it ' s asset

11 management fees and it ' s on page 21. Could you read

J2 what was taken for asset management fees?

13 A Page 21?

Q Yes, ma ' am, of the same exhibit.

A ·rot al asset manage:ncnt fees 2 . 7 million .

Q Would you go to page 19 of the exhibit,

11

15

16 1 ., please. Do you see down near the bottom where it

18 total interest expense?

19

20

2:;_

22

23

.'A.

Q

A

Q

l,

24 invesLors .

25 Q

Yes .

And that number is?

6 . J mill.ion .

And what is the total interest expense?

It ' s the distribu~ions made to the

And has any of part of this been

says

I


Page 92

1 capitalized?

2 A Yes . The 14. 9 million interest expense

3 other adjustment is moving it to t ~e bal ance sheet .

4 Q Is the 6.1 million the interest that was

~ paid this year?

6 A I cannot be certain .

7 MR . HARAY : I think you might have said 16 .1

8 million instead of 6 . 1 million just to confirm.

9 MR. DE~ : Did I say 6 . 1 or 16?

10 (Tl1e last question was read back by the

11 court reporter.)

12 BY MR . DEE :

13

l s 15

16

i7

18

19

20

21

22

23

24

25

Q Let me just ask a few questions in reference

to the interest expense.

A Mmrn- hmm . Q Does the 6.1 million represent monthly

interest payments to investors?

.r:.. I cannot say ' cause i:.his is from inception .

I ' m not sure what period it covers .

Q

A

Q

A

Q

Does it well, let me reword it.

Do you pay monthly interest to investors?

Yes .

Do you pay quarterly interest to investors?

Yes .

Do you have growth investors?


1

2

A

Q

Page 93

Yes .

Is it true that 25 percent of your investors

3 are growth investors?

4 A I do not know .

5 Q Never done that analysis?

6 .'A. No .

7 Q Do you have any knowledge or have you done

8 any analysis of how many notes are due in the first

9 third of this upcoming year in 2020?

10 A No , I have not .

1 1 Q Can you go to page 3 of the same exhibit.

12 If you look right under -- are you there yet?

1 3 A Yes .

14 Q Okay. If you look right under tax

:s preparation fees you'll see another asset management

16 fee . Do you see that?

17 A Page 3 . On page 3?

18 Q Yes .

1 9 MR . HARAY : ~Jhich one is it? This one?

20

21

22

A

MR. U~R : This one .

Ye s .

BY MR. DE:£ :

23 Q Okay. There ' s another asset management fee

24 there 84 , 000, is that misclassified?

25 A l canno t cel l without looking for i t ~n Lhe

-


Page 94

1 deLail description .

2

3

4

6

7

8

9

10

Q Okay. Let's go to commissions which is at

the bottom of page 3.

A Yes .

Q Could you tell me what the amount is?

A $523 , 500 .

Q And this commission represents what? Can

you tell me what that represents?

A It ' s

without seeing

hard to say the period and the date

the details , but generally the

11 com.11'.issions is the percent.age that we pay on the

12 investment .

13 Q These are payments for what the sales agents

14 collect?

15 A I ' m not sure the third party, but we

16 normally make these payments to either MA Sears or BR

17 Support Services .

18

19

?O

21

22

23

24

25

Q

Q

MR . HARAY : Finish with this?

MR. DEE : Ye s , but I would hang on i t .

BY t"'. R. DEE:

Would you mark this as the next exhibit.

(SEC Exhibit No . 7 was marked for

identification.)

BY M~ . DEE :

Would you take a look at Exhibit 7.

I


Page 95

1 When you had mentioned BR Support Services

2 and we had just talked about conunission, is this what

3 you were referring to?

4 ."A. Ye s.

5 Q And the commission expense is capitalized?

6 A Yes .

7 Q Would you go to page 3 and tell me what that

8 total number is.

9 A Total 15 . 5 mil l ion .

10

11

12

13

11

15

16

17

18

19

20

21

22

23

24

25

Q All right. Let ' s go to assets. Go back to

the statement, the cash flows.

A You have the exhibit number?

Q I believe it was --

Q

A

Q

Trust?

A

Q

MR. 1-lARAY : It was c . Oh . 5 .

BY tv.R . DEE :

Do you see any note receivables on there?

Yes .

Okay. Do you see one for McDonald Revocable

It ' s probably abbreviated.

Yes .

Would you mark that as an exhibit?


identification.)

MR. HARAY: 8?

MR. Dl!.E : Yes .

,,


1

2

3

4

5

6

7

8

9

10

Page 96

BY MR . DEE :

Q This is kind of a side exhibit to the

statement of cash flows?

A Yes .

Q That ' s the detail on this note receivable?

.r. Yes .

Q Do you know what it means to reclass

investment accounts with no initial investment under

memo?

A That first li ne was meant by Dearolf , so

11 it ' s hard for me to speak to why they made that

12 adjustment .

13 Q Dearolf is?

1 4 A Dearolf & Mereness . They were the tax

15 accountants that were also doing the year-end

1 6 adjustments .

17 Q Okay. So he -- he is the person I need to

18 talk to?

19

20

21

22

23

24

25

MR . HARAY : Sorry . She didn ' t say Darrell .

She said 0earolf .

BY MR . DEE :

Q Dearolf?

A Yes . Dearolf & Mereness .

Q Is it Dearolf?

A Yes, Dearolf .

I


Q

Page 97

Do you see distributions on that statement

2 of cash flows?

3 I'm going to go off the record for 5

11 minutes. The time is l: 27.

5

·, ,

8

9

10

11

1?,

Q

where you

~R . DEE : Okay . We "re back on the record .

BY MR . DEE :

The last thing we looked at was distribution

saw -- I gave you an exhibit.

MR . HAR.A.Y : I believe asked her abou l

distribulions .

Q Did you get that Exhibit?

MR . HARAY : We're at:>. 5 i.s in :"rent of

13 her 1 should say .

14 BY MR . DEE :

15 Q All right. Let ' s go to page 18, the

]6 distributions that are there. The document reflects

l. 7 that 7.6 -- or I 'm sorry 7.9, almost 8 million in

18 distributions were made; is that correct?

19

20

A

Q

Per the documenl , yes .

Next thing I want to look at is properties.

2: I think I remember you testified that that ' s what you

?.2 record, the transactions and the acquisition of

?3

? 4

/, 5

properties; is that correct?

li. Under properties? Under --

Q Do you record the payments and the

-

'

'


Page 98

1 acquisitions of properties?

2 A Yes.

3 Q Okay.

4 rrom 2019 and forward .

5

A

Q All right. Page 1 of Exhibit 5, do you see

6

7

8

9

10

11

where it says depreciable assets, real property?

A Yes .

Q Okay . And it ' s almost 20 million. It ' s

actually 19.8 million.

A Yes.

Q All right. I have a little more detail of

12 that. Would you mark that as an exhibit?


15

16 Q

identification.)

BY MR . DEE :

Let me show you Exhibit 9 . Exhibit 9 are --

17 is depreciable assets, real property.

18 When you -- is this what you would do, you

19 would record these properties when they're bought and

20 the payments for them for the year 2019?

21 A Yes . I wouldn ' t necessarily put i~ all in

22 one category here , depreciable assets , bu~: will

23 record them on the balance sheet or fix asset account .

24 Q And page 6 of 6 under number, the column.

25 Is your designation DAS?

-


1

2

A

Q

Page 99

Yes , it is .

Okay. So for every designation, the DAS,

3 you recorded the sale or purchase of properties?

4

5

A

Q

Sale purchase or reclassification .

And the total amount of real property owned

6 by fund l is 19.8 million?

7

8

A

Q

Under this real property account .

Would there be any other account that

9 property be recorded?

10 A When t he property ls just purchased,

11 sometime it originally gets recorded to the property

12 investments account then get allocated and also it may

13 get allocated to land as well , i t would also include

14 cost of che property .

15

16

17

18

19

20

21

22

23

24

25

Q

would be

on page

A

you can

A

In Exhibit 5 you referred to land, that

almost $6 million according to the document

l?

According to the document .

MR. HARJ\Y : Which document? I'm sorry .

MR . DEE : Exhibit 5 .

MR . HARAY : Do you want her to look at it?

MR . :lEE : Yes.

MR . HARAY : You have to iook at it befoi:-e

answer.

Okay .

'


Page 100

1 BY MR . DEE :

2 Q Construction in progress on the same page,

3 this fund has paid three and a half million dollars

4 according to this document?

5 A According to the document .

6

7

8

Q Leasehold improvements 4.8 million according

to this document?

A And also the additional amounts allocated

9 i dentifying property names l ike 1334 Kett:e Avenue and

10 so on .

1 1

12

Q

A

Property investments?

Prope rty investments or properties purchased

13 should be the account where properties are purchased ,

14 but not yel allocated out to the fixed asset .

15

1 6

17

18

19

20

21

22

23

2~

25

Q I'm sorry. And you had made reference to

that earlier. If it wasn't in real property, it could

be recorded there?

A Say that again?

Q You had testified earlier, I believe ,

that when we were talking about real property, if

real if it wasn't recorded under real property, it

could be recorded under property investment?

A Yes , it could .

Q Can you turn to page 2 Exhibit 5.

Do you see on the third line there it says

'

I

'


Page 101

l "Loan, 5123 Broadway"?

2 A Yes , I do .

3 Q Are you familiar with that transaction or

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

transactions?

A Yes , I a m.

Q What can you tell me about that?

A I L 's a loan made to anot her entity , 5123

Broadway .

Q And who is 5123 Broadway?

.'A. It ' s anoi:her entity . I don ' t remember the

main name o f it, bu l that ' s the address of that

particular entity that the loan was issued to.

Q And that is an investment for fund l?

A Yes , an investment that fund 1 or loan they

issue .

(Court reporter clarlf~caLion . )

A An inveslment that they made or a loan did

basically issue to 5123 Broadway .

Q I'm going to show you some detail of that.

Would you mark that as an exhibit for me, please.


identification.)

BY MR . DEE : Q Would you look at Exhibit 10. This is the

loan, the 5123 Broadway. I wonder if you could


Pa g e 102

1 explain if this was -- or how the management companies

2 involved Equialt, LLC or why their name is entered for

3 April 22nd, 2019?

4 A Yeah. I think this js one that we found

5 recent ly where Equial t , LLC I believe sold a property

6 to fund 11, this i s fund ll's books , and instead of --

7 what they did, instead of going t hrough by paying fund

8 1 and then fund 1 paying Equial t , LLC , they instead

9 e l iminated that second party and allow them to just

10 reimburse chem instead through Broadway . So this is

11 one that I've seen recently .

12

13

14

15

16

17

18

19

20

21

22

it's

Q

A

Q

A

Are you sure?

I can look further at it t o be sure .

Okay. But you ' re not positive today?

No . I know this came up recently where

documents ,,ere found that i L may or may not

have been recorded correctly, so that one I have tc

check back on .

Q And just above that we have the capitalized

cost of both commissions and interest; is that

correct? Exhibit 5 page 2.

MR . HARAY : Oh . What was it again? We ' re

23 on the page .

?4 BY ~R . DEE :

25 Q Top of the page. Top of page 2, Exhibit 5,

'


1

2

3

4

5

6

7

8

9

1 C

11

Page J03

loan cost commissions, loan cost interest.

A Yes.

Q Okay. And there's no reason to believe that

the amounts there are not accurate?

A Except whatever has not been reclass on the

income stacement at chat point in time .

Q Just one additional question. The title

loan costs, was that there before you were hired?

A Yes . This was assigned to the cost that

Dearolf & Mereness when they were doing the books ,

they assigned -- started assign it historically to

12 that description .

13 Q Okay. In your bookkeeping in accounting

1,1 have you ever used just the initials RCL capitalized,

16

17

18

1 9

20

21

meaning reclassified?

A Possibly .

Q Okay. It doesn't represent a company?

l\

Q

A

Q

No .

Okay.

Noc that I ' m aware of .

All right. I think there is two other note

22 receivables I'm going to look at, but I ' m going to

23 have to introduce the balance sheet to do it.

24 A Okay .

25 Q If you look at this exhibit on page 2.

'


1

2

3

4

5

6

A Yes.

Page 10 4


identification.)

BY MR. DEE:

Q Go under related party by category. There's

a do to/from Equialt, LLC other in the amount of 2.2

7 million; is that accurate?

8 A 2 . 2 million?

9 Q Yes.

10

11

12

A

Q

Yes , I see Lhat .

Is that a loan to the management company?

It ' s hard for me to speak to the items in

13 t h is account because just from my research, I realize

11 that there are properties that have been purchased

15 that have not been correctly identified to a

16 particular fund and it will be placed in the Do To Do

17 from account .

18

19

20

21

22

23

Q Do you know what that account is used for?

~ Any amounts Lhat it bel ieves Lb.at Equialt ,

LLC owes t~e fund 1 . I ' ve a l so discovered that

management fees and stuff that were unce r ta i n as to

what they were are also in that account .

Q Is it accurate to characterize that account

24 like a junk box where you just -- they just drop

25 stuff?

,I

'I

,,


1

2

3

4

~

6

7

8

<)

10

11

12

Page 105

A No , it is not , but , yeah .

Q I have a document that may clarify that.

Hold onto that. This is the detail of that account.

If you can take a quick look at it once we introduce

this exhibit, Exhibit No. 12.

A


identification.)

And can you clarify what you ' re sayjng? Are

you asking me if it is accurate to do it or you 're

basically tellins me that ' s what they have been doing?

BY MR. DE::': :

Q Yes. The latter, which you had described.

13 Take a look at that and see if it ' s -- it looks like a

14 catch-all.

15 A Unfortunately, historical l y that ' s what 's

16 has been happening wjth Lhis account .

17 Q Okay. So -- I mean it ' s a thick exhibit and

18 it has a lot of details. So it looks like it goes

19 back and forth. This is a noninterest note .

20

21

22

23

24

25

MR . HA~~Y: Which is?

MR . DEE: The note recejvable that Lhe

management company owes to fund 1 .

MR . HARAY : Is there a particular part of

the docu~ent we ' re looking at?

BY MR . DEE:

I


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

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Page 106

Q Well, this whole note seems to just run

that's why I'm asking. The note receivable just

continues to run. It started -- if you look at the

front of the exhibit on page 1 it says March 1st, 2010

and then it runs all the way through April 11th, 2019

on the penultimate page and then the last page it has

the last entry, July 26, 2019 on page 15 of 15. So

this is a note receivable that's almost 9 years old.

A No . Because you see right throughout where

the credits are there where it has been reimbursed

during various times .

Q Is it -- can I almost characterize it as a

line of credit?

A No . From what I ' ve seen or from my

experience , yeah .

MR . HARAY : That's the question he asked .

think you answered it .

BY MR . OP.E :

Q Can we just agree that the management

company owes fund 1 $2.2 million?

A 1 cannot speak to it without further

research as to some of these items .

Q Just curious. What kind of research would

you have to do?

A From 2019 what I found ou~ is that , some

I

'

I


Page 107

l. expenses like management fees have been categorized as

2 a do- to-do from , when i t' s actually not .

3

4

5

6

Q Thank you. Let ' s -- I 'm interested to

know discuss liabilities , we'll stay within the

balance sheet.

MR . H.D..R.!\Y: Is that 5?

7 MR . D88 : Statement of cash flow is 5 . 9 I

8 think it was . rhe ba l ance sheet , 11 .

9

10

11

12

13

1,;

Q

MS . MASELLn : The balance sheet is 11.

BY MR. l)P.E: :

Okay . Go to the last page. Do you see

total investment?

A Yes .

Q All right. That number is 97,657,000 and

15 change, correct?

16 A Correct .

17

18

19

20

21

22

23

24

25

Q Is that what ' s owed to the investors of this

fund?

A I can ' t be cer t a i n just beca~se of the

issues we have been having with QuickBoo~s .

Q And those issues are?

Just if the informations there is accurately

reflecting what it is .

Q And if I ask you anything further about this

fund, are you going to reply that you have issues with

I


Page 108

1 QuickBooks and you can ' t answer any further?

2 MR . HARAY : \•lell , I think you just have to

3 answer your questions -- ask the questions .

4 A I t ' s hard for me to say until I hear the

5 question .

6

7

8

9

10

11

12

13

14

15

16

17

18

J 9

20

21

22

BY MR. DEE:

Q Let's go to equity . Total equity is a

negative 40 million -- actually, 40.1, correct?

A Per the document , that is correct .

Q Per the document, what would cause the fund

to be $40 million of negative equity?

A Negative equity in genera l is where a

company ' s liabilities exceeds its assets , but ln this

case the assets are reflected a cost . We don ' t

reflect the fair market value or any appreciation of

t~e asset so to speak , so that will speak to that as

well .

say?

Q But we're just going by what the QuickBooks

A

Q

Yes.

And part of the assets are the capitalized

expenses, correct? The two largest are interest and

23 commissions?

24

25

A

Q

Yes .

All right. Just using round numbers they ' re

- -

i

'


Page 109

1 15 million each, about $30 million , correct? Or is

2 that fair?

3 A Let me look at it to verify. 15 million,

4 yeah, that ' s correct .

5 Q Sound like you said 50.

6

7

8

9

10

1 l

12

13

14

15

16

17

18

19

20

21

22

23

24

25

A

Q

15 million each, that's fair .

15 million a piece.

MR . HP,RAY : One five each .

P.. Yes .

BY MR . DEE :

Q And you've had about $10 million worth of

amortization expense, correct?

A Yes .

Q All right . So if you didn't have those two

expenses capitalized, your negative equity -- even if

I included the $10 million of amortization expense,

your negative equity could be about $60 million.

A About 70 .

Q Yeah. Go ahead and repeat that , please.

A It wouldn ' t be 60 million . I think it would

have been around 70 million .

Q 70 million. I was a little conservative.

Thank you.

Now , we ' ve taken a look at fund 1, based on

the documents you have about 12 million in revenue ,

-

1,

I

,,


1

2

3

4

5

6

7

8

9

10

1 1

12

l 3

1 4

15

16

17

18

Page 110

you're showing negative -- or you ' re showing a net

loss of 27 million, so you ' re showing expenses for the

period that we looked at of about $39 million, where

does the money come from to cover the deficit?

A The balance sheet s have been ~econciled I

know each month and that ' s the most I cou l d speak

about , which shows that all funds have been in and out

a t least thr ough 2018 , but to speak Lo specifical ly

where the funds have come f r om , a further rev::.ew of

the balance sleeL or bank sLatement would have to give

me that inf ormation .

Q And while you've been there in 2019, you ' ve

had about $6 million of interest expense, correct?

A It ' s hard t o say from thi s document . Since

iL ' s run from inception , the transaction de t a i l s will

have i:o l et me know specificall y how much it is :or

2019 .

Q Well, let's speak hypothetically. Let's say

19 it is 6 million for this year, if it averages 6

20 million just for two years, you've already eaten up

21 your revenue that you made from 2011 all the way to

22 we'll say to be fair -- the end of October 2019 . Why

23 isn ' t the fund generating enough revenue to cover its

24 expenses?

25 A Repeat the question .

I


1 Q

Page 111

Why isn't the fund generating enough revenue

2 to cover its expenses?

3 A I don ' t know w~y . : can ' t necessari l y speak

4 to the operations of t he fund as to property

5 management . I can just speak to more of the income

6 and the expenses that go out.

7 Q I've only read these books and records for

8 maybe two and a half weeks, I haven't been there 10

9 months like you, so you've got a little bit on me.

lC But I'm looking at them and I have to ask a question,

11 it begs the question , where is the money coming from

12 to cover the deficit?

13 Now, if you raise -- according to the pro

1 4 forma statement that ' s an exhibit, I believe, 3, you

15 raised about $104 million; if you ' re only generating

16 $12 million of revenue, it could only mean that the

17 money is coming from the investor funds; is that

J 8 correct?

19

20

21

22

23

21

25

question .

Q

correct?

A

-

MR . HARI\Y : Sorry . That is a very long

I don ' t know t~at anyone can fol low , so

M~ . DEE: Sure .

BY M~. DEE:

You raised a hundred million dollars,

Per the document , yes .

'


1 Q

Page 112

You 've got $30 million in interest and

2 commission expense.

3

4

A

Q

5 correct?

6 A

Q

?e~ the document , yes .

You've only generated 12 million in revenue,

Per the documents .

Per the documents. That's 18 million of 7

8 deficit right there . So if you have a deficit of 18

9 million, you have to use the investor funds to pay

10 your debts, isn't that true?

11 MR . HARAY : Well, if you ' re aski:-ig her where

12 the money comes from, I think you just asked her that

13 and she said she didn't know .

1 t, BY MR . DEi,~ :

15 Q If you raised a hundred million dollars from

16 investors, you have a hundred million dollars,

17 correct?

18

1 9

A

Q

Yes .

All right . Now, you're operating, you only

20 generated 12 million your revenue?

21

22

23

24

25

A

Q

A

Q

A

Yes .

You have

Yes.

You have

Yf!s .

expenses of 39 million?

net loss of 27 million?

,,


Page 113

1 Q Don't you go to the investor funds to cover

2 that deficit?

3 A It' s hard for me to respond because l i ke I

4 said, assunption is being made that the information is

5 accurate . Just looki ng at these books and these

6 numbers already , it ' s clearly that it ' s not completely

7 accurate, so therefore, I cannot make an assumption or

8 draw an opi nion as to where it comes from . Because

9 just obviously, just skipping through the pages, there

1 0 are a lot of tnings in this QuickBooks t hat ' s out of

11 al i gnment that has to be repaired . It ' s a n unaudited

12 document so I cannot make a n assumption as Lo where

13 the fund s come from because it ' s obvious tha t this

14 QuickBooks documents needs cleaning and need to be

1~ reviewed and order to correctly , and accurately

16 reflect the information . That ' s the most I can do on

17 that .

18 Q You have no argument that this fund's only

19 raised 12 million? You have no argument with that

20 number, do you?

21 A Per this document . I have an argument wlth

22 negative 455 in the bank account . A oank is not going

23 to have negative 455 in the bank account it continue ,

24 so this goes to show tha t this information in the

25 firs t place is not accurate , so garbage in garbage


Page 114

1 out. So for me to draw a conclusion on a n inaccurate

2 statemenl , I cannot .

3 Q Do you make -- I think you testified that

4 you make high-level reports to Mr. Davison , correct?

5 A Yes , I do .

6 Q And you do on cash flow activity; is that

7 correct?

8 A We call it weekly cash activily, yes ; not

9 necessari ly a cash flow .

10 Q I stand corrected. Do you make any

11 operational analysis to Mr. Davison?

12 n Not on frequent basis , just on a property by

13 property basis , 1,1hich jus t tells the performance of

14 each proper l y .

15 Q Do you make any performance analysis for Mr.

16 Davison?

17

18

19

20

21

22

23

A And performance , meaning?

Q How the fund is doing.

A I don ' t do a fund analysis at this time .

Q Does anybody?

A The chief investment officer may as Lhat may

be a part of his function , but I can ' t speak to any .

Q I want to go onto fund II. You want to take

24 a quick five-minute break. We'll go off the record at

25 2 o ' clock.

'-====------=======----=======---======----' !


1

Page 115

MR . ~EE : Let ' s go back on t he record at

2 2 : 09 p .m.

3 BY MR . ZAl'-'.ORANO :

4

5

6

7

8

9

10

11

12

13

14

15

J 6

17

18

19

20

Q Ms . Stoddart, if I could just, for the

benefit of the court reporter, request that you speak

a little bit more slowly.

A I ' m sorry . My accent .

Q She has a little bit of difficulty catching

everything you're saying.

l\ Okay .

Q So I want to make sure the record is clear.

A Okay . I'll do that .

Q Thank you for your co-operation.

P.. All ri.ght .

BY MR . DEE :

Q Let ' s mark this.

Q


identification.)

BY MR . DEB :

We are going to go over fund II. Fund II is

21 the statement of cash flows all transactions. Please

22 take a look at that first and let me know when you're

23 ready.

24

25

T-1

Q

Okay . I ' m ready .

All right. According to the document, net


Page 116

1 loss for this fund from inception was 14.9 million,

2 according to the document, do you agree?

3 MR . rtARAY : Did she agree it says that?

4 BY MR . DEE :

5 Q Do you agree that the net loss from

6 inception was 14.9 million?

7 A Yes . Per this document , it has :1 . 9

8 million .

9 Q Okay. Let's take a look at the profit and

10 loss for fund II like we did for you fund 1.


12 identification . )

13 BY MR . DEE :

14

15

16

17

18

Q Take a look at Exhibit 14.

MR . HARAY : Do you have a spare?

MR . DEE : Yes .

t--'.R . HARAY : Thank you .

BY MR . DEE :

19 Q Okay. Let's look at total rental income.

20 According to the document it was 3.4 million; is that

21 correct?

22 A Per the document it ' s 3 . 4 million .

23 Q Is there any other income on this document?

24 Take look. Take your time. Take a look.

25 A T see total other income for 333 , 000 .

'


1 Q Okay.

Page 117 1

So is it safe to say if I add the two

2 incomes together, according to this document, I'll

3 come to roughly 3.7 million?

4 A Roughly 3 . 8 , yes .

5 Q Thank you. Let ' s look at expenses.

6 Page 2 under commission expense, according

7 to the document, 336,500 was paid to Equialt the

8 management company, correct?

9 A Per ;:he document , that ' s co.erect .

10 Q And per the document, other commission

11 expense was another 145,000?

12 A That ' s correct .

13 Q Okay. So total commissions expense there,

14 per the document, was $481,500; is that correct?

15 A $480 , 522 . 38 , that ' s correct .

16 Q Okay. In your experience since 2019 in

17 recording journal transactions in the fund, did you

18 happen to notice what the largest expense was per

19

20

fund?

A We have a few large expenses that I ' ve

2 1 no Led. They general l y are commission expenses ,

22 managemen;:. fees and all distribu~ions or interest

23

211

25

expense payments to investors .

Q What was the total expense before net

ordinary income on the last page, page 10? II


Page 118

1 A Total expense is 11 million.

2 Q And what was the net loss?

3 A The net loss per this document is 14 . 9

4 million .

S Q How does the fund make up the deficit

6 between the revenue and expenses?

7 A I cannot speak to iL and I don ' t know

8 without paying further at&ention to what' s on

9 everything and the bank statemenl , honestly . ' Cause

10

11

12

13

1~

15

16

17

18

19

20

21

22

23

24

25

this is from inception historical , which I can ' t speak

to the older his&ory, older transaction as to how they

have been making up the defi.ci t .

Q Do you know what the net income is between

the months February 2019 and the end of October 2019?

A 1 don ' t know it off my head . Net operating

income we have been revi.e~1ing it per: property and

that ' s just Lhe make focus for now .

Q There ' s no concern by management what net

income is for the funds?

A I don ' t know in terms of managemen&, but I

just know in terms of property operating day-today

just to make sure tne properties are profitable.

Q And when you say the properties are

profitable, could you describe that for me?

."A. It ' s more seeing that the rental income '


Page 119

1 that ' s collected for each property exceeds the expense

2 i:hat are paid out for the property, the maintenance

3 e xpenses .

4 Q And there is no concern about the

S profitability of the fund?

6 MR . HARAY : Sne didn ' t say that .

7 KR. DRE : No . No. That ' s a separate

8 question .

9

10

1 I

12

13

14

15

16

17

18

19

20

21

22

23

2,;

25

MR . HARAY : Concern by who?

MR. DEE : By management .

BY MR. DEE :

Q Let me rephrase.

A Yeah .

Q Management is concerned about the

profitability of the rental income over expenses of

each individual property, correct? Is that what you

told me?

n They are concerned and review t hose , yes .

Q And I'm drawing an inference that that is a

priority for management.

A I don ' t get that opinion .

Q No?

.n. Ko .

Q Okay. What is a priority?

A When you ' re saying priorii:y, you ' re Lhinking

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I

I ,


·1

2

Page 120

the only priority or one of the pr~orities?

Q The priority per the funds, is there any

3 priority or concern about the funds and how they're

4 performing?

5 A Based

6 MR. Hl\l\AY : Can I just -- ' cause I think

7 it ' s unclear for t he record . Are you asking her what

8 other people in particular are thinking and if so ,

9 who , and can you

10 BY MR . DEE:

1 1

12

13

Q

A

Q

Do you report to Mr. Davison?

Yes , I do .

Has he expressed any concern about the

1.4 performance of fund 1, fund II that we've already

15 discussed?

16 A Mr . Davison will more express to me based on

17 what I produce in the Quick8ooks . There ' s a chief

18 investment of::icer as well who is mo::e intimate 1•:i t r.

19 the funds and invest in it . Ee also work close with

20 Mr . Davidson . Ile ~Jill more 1 i kely produce the reports

21 that you have given to me, and more like ly M:: . Davison

22 would have consulted on him on that aspect , but for my

23 portfolio , that ' s hasn' t come up as a responsibility

24 for me .

25 Q So Mr. Kelly, he ' s the chief investment

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Page 121

l officer that you're talking about?

2

3

A

Q

Yes .

He doesn't come to you at all even though

4 you are the controller? c. A He wi ll come to me for information from

6 QuickBooks or information fo r the funds he wil l get

7 from Barry di r ectly 1,ho has ;:he fund informat i on as

8 well .

9 Q What does Mr. Kelly -- what kind of

1 0 information does Mr. Kelly ask you about QuickBooks?

11 He will ask me for the information I spoke

12 to you earl ier about , about ;:he property operating in

13 terms of t he renta l income and the main;:enance t hat

14

15

16

17

goes ou;: . He may need informati on on bank

transact i ons , if anything , so t hat he can determine

cash flow . That ' s the most that I may get from him .

Q Should I draw the conclusion that neither

18 Mr. Davison nor Mr. Kelly care how the funds operate?

1 9 MR . l!ARAY : I don ' t think that ' s - - tha l

20 doesn ' t seem to be a fair d r awing from what s:ie said .

21 Are you as~ing her a separate question about whether

22 they care in he r view?

23

24

25

MR. DEE : Yes .

A I absolutely could not draw that conclusion

because earlier you produce to me i nformation ,

-


Page 122

1 analysis and performance that they did . 1 may not be

2 i nvolved in the preparaLion of those performance , but

3 obviousl y , they are preparing performance anc

4 reviewing it .

S BY MR . Di::E:

6

7

8

9

Q So my questions are better directed towards

Mr. Davison and Mr. Kelly?

P.. Probably .

Q Fair enough. But according to this fund,

10 we ' re operating in hole and that ' s a layman's term

11 that expenses exceed revenue.

12 A According to th~s documenl which - - where a

13 lot of the in:ormation , just look at it surfacely ,

1~ cannot be correct . It is - - that ' s the case .

15 Q Well, tell me why it can't be correct?

16 A I saw i l on f und 1, I ' m just seeing if 1 see

17 i t on fund IT as well .

18 Q Did you know that these QuickBooks were

19 being produced to the SEC?

20 l\ Yes . I was a11are that we v1ere being

21 produced Lo the SEC .

22

23

24

25

-

Q Did you express your opinion that there were

errors in there?

MR . HARAY : Wel l , no. We ' re not going to

get into conversations between her and counsel .

'

I


Page 123

1

2

MR . DE8 : I cj dn ' t ask :1e r about counse 1 .

MR . HARfl.Y: 'tle l .:. , you're elicit ing c,uestions

3 about - -4 MR. DEE : I ' 11 stay w<.Jy fr om ,Jrivi l ege --

5 MR. HP..RJ\Y : I 'd l.'..ke to fini sh. I ' d li ke to

6 fin ish wh<.Jt I' m saying fo r the record .

7 You're el iciting questions about the

8 product i on of the records as I unders tanc it, so you

9 can d irec~ those to us and we can answer t hem . As far

10 as I unde r s land , you asked for the actual r ecords of

1 1 the company a nc: they ,1cre -- t hai: ' s 1•1hat was produced,

12 but .:. f t here's clari ficat i ons or correct i ons they ' re

1 3 making to the r ecord, we can tal k abou~ that if she

14 knows it , but we produced the records .

15 MS . ,JOHNSON : I don ' t th.:.nk she ar.swered

16 your questions about what was i ncorrect about f und II .

17 MR. DE~: Go back a nd read t he l ast question

18 in reference to wha~ was co rrect a nd not correct --

19 what she Lhought was surfacel y 11ot cor r ect tha t she

20

21

22

?. 3

24

25

BY MR . DEE:

Q You surfacely can look at it and see errors ,

can you tell me what those errors are?

A For example, on page 6 if you Jook and you

see an invesi:; men L from Raymond W. K, Bi:1r of

-


1

2

3

4

6

7

8

0 _,

lC

11

12

1 3

14

15

16

17

18

19

20

21

22

?age 124

$19 , 372 , 000 , t here shou ld not be a negatjve inves t ment

' cause the return lo the investor should not exceed

lhe amount :hat :ie actually invested . Normal l y i n

this case ~urthers research has to be done to ~ind o~t

if this amount is act t:ally an ::.nterest expense thal

was paid or to try and locace the ! nvestors

investment , or to see if it's under another na~e or

the name may have been classified somc,1here else. I

don ' t -- let me see if the ban~ is here . I don ' t have

t he balance sheet to verify if there ' s any negat!ve

amount in t he bank accounts right now, but il ' s items

of that nature that wi ll let me quest~on t:ie balance .

Q Are any of the se items that you mentioned

material?

A Yes . On the bank stalement -- l et me see

the balance sheet . J don ' t see t'1e ba 1 a nee sheet for

[unci TI here . I ' m no: sun! if l got it. I ' ll have le

see i;; to delermi ne that . I think •.-:hat ' s fairly

mate r ial here is the negative account s receivable of

S287 , 000. Is tha: it? Oh , no. T~at ' s the cash flow .

Yeah .

MR . :-IAR.ll. Y: I ;;hink he ' s qoing to ask

23 another question.

24 A Okay.

?.~ MR. DER: No. I ' m just listen i nq.

-

II


1

2

3

4

so --

Page 125

MR. HARAY : There ' s no question pending,

MR. D~E: I ' m listening .

MR . HARAY: - - wait for the question .

5 BY ~R . DEE:

6 Q But according to the document , even with

7 your observations it's still a net loss of $15

8 million; is correct?

9 A Again , it ' s hard for me to speak to a

10 document that I didn ' t absolutely prepare to even try

11 Lo get my name against it . As I mentioned before , I

12 starled 2019 , we started focusing on that and it ' s

13 hard for me to verify information that ' s from

14 inception to 1•1hen I was not: employed . I can ' t rea l ly

15 co111ment on what ' s in some of these -- what i s in t:1is

16 document completely .

17 Q Can you verify what the net loss was on page

18 10 according to the document?

19 A I can tell you that the net loss on this

20 document on page 101 is 1 4 . 9 million .

21 Q Thank you. And my final question for fund

22 II.

23 You have historical net loss, which means

24 you've exceeded your revenues, where do you draw the

25 funds from to continue operating this fund?


1

3

4

5

6

7

8

9

10

A

Page 126

This fund has been operating for a while, so

t:he f unds must come from somewhere , but I ca:-i ' t speak

to specifically where it has come from without further

reviewing of the information .

Q If the funds -- the only funds available are

investors funds, then they would have to come from

investor funds, wouldn't it?

A Unless there ' s something else i n the books

that we haven ' t seen ,1hich I can ' t speak to .

Q Do you know that the fund is raising money

11 from any other investment other than cash that it has

12 now? I 'm sorry. Strike that.

13 Fund II raises money from investors, the

1«; fund generates revenue, those are the only two sources

1!) of fund, isn ' t it? Isn ' t that correct?

16 A The main source of revenue is from the

17 operations of the property purchases , whether it's the

18 sale or the rental income that I ' m aware of .

19 Q Okay. But we read at -- and you read the

20

21

22

number,

A

Q

net loss was 14 . 9 million, correct?

Mmm-hmm .

All right. In a normal operation if you're

23 at that net loss, haven't you exceeded your revenue

24 with expenses?

25 A In a normal operation .


Page 127

1 Q And if I gave you a hundred thousand dollars

2 as one investor this is just a round amount . That

3 doesn't mean it was raised by fund II -- and you had a

4 15 , 000-dollar loss historically , wouldn't I have to

5 draw that money from the investor, me?

6 h Not necessarily . You can take a loan o r do

7 other s~uff to get the money Lo f u nd it if you want to

8 get technical .

9 But i f there ' s no other source of fund , you

10 have to . But the mere fact that you coul d pay it to

11

12

13

14

15

16

17

18

the investor, means that you have the fund somewhere

there .

Q But I'm the only investor, I gave you a

hundred grand a hundred million dollars --

A Yes .

Q -- and you lost 15 million, and you have 85

surplus and you can draw another 15, right?

A You will have to have funds coming from

19 somewhere .

20 I f you are t he only investor with a hundred

21 thousand a~d you draw J 5 , you will have to get money

22 somewhere , yeah .

23 Q All right . Let's go to Fund III.

2~ This exhibit is EA SIP, LLC and it's going

25 to be the statement of cash flows all transactions.

-


1

2

3

t.]

5

6

7

8

9

10

A

Q

Q

Okay .

Page 128


identification.)

BY MR. DEE:

And it's from the inception.

MR. l!ARJ\.Y: Is it 14 or 15?

MR. DEE : : 5. BY MR. DES :

Could you look at that , please.

MR. HARAY : It's not !"und III . Are we not

11 doing Fund III? I'm sorry .

12 MR. DEE : I don't even know what Fund III

13 is .

14

15

16

17

18

19

Q

A

Q

MR. ZAMORANO : EA SIP .

MR . HARAY : EA SIP .

BY MR. DC:F. :

Let me know when you're ready, Ms. Stoddart.

Al l right . I ' m r eady .

Okay. According to this document, this fund

20 suffered a net loss of 3.7 million, correct?

21 A Correct , per the document .

22 Q The net cash provided by operating

23 activities, according to this document, was a negative

24 3.7 million almost 3.75, correct?

25 A Correct , per the documen t .

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1

2

3

4

Q

?age 129

Let ' s look at the P and L.


identification.)

BY MR . DEE :

Q This is going to be the profit and loss for

6 EA P EA SIP, LLC and it ' s all transactions. Take a

7 look at that. Let me know when you ' re ready.

8 A All righ~ . I ' m ready .

9 Q According to the profit and loss statement

10 from inception, total net income was 176,000; is that

11 correct?

12 A That is correct . 176 , 000 per the document .

13

11

15

16

Q

589,000

A

Q

And the cost of labor commissions was

and change; is that correct?

That is correct .

Okay. Gross profit is negative 414,000;

17 that correct?

18 A Thal is correct .

19 Q On page 2 total expense was $209 , 665 and

20 change, correct?

21 A Total interest expense $209 , 665 . 35 , yes .

is

22 Q Total professional fees, $123 and 200 -- I'm

23 sorry -- $123,283.52, correct?

24 A Correct .

25 Q Net ordinary income was a negative


Page 130

1 2,045,000, correct?

2

3

A

Q

Correct .

Page 3 we ' re showing a net loss of 3.7

4 million, correct?

5 l~ '.!'hat is correct .

6

7

8

9

Q This fund is also showing expenses greater

than revenue; is that correct?

A That is correct .

Q Where do we get the funds to cover the

10 deficit?

11 A With triis one particu l arly I want to point

12 out that ?art of the deficit is because of noncash

13 items . Li ke with the amortization expense and if

there 's a depreciation expense , it doesn ' t affect the

15 cash , so those are noncash activities which wouldn ' t

J6 need a necessarily 3 . 7 to cover . But otherwise , r 17 cannoi: speak to where i ' s comi ng from, but I know

18 there 's a positive cash flow at the end of the period .

1 9

20

21

22

Q That's all for Fund III -- EA SIP. Sorry.

Now I know why you asked.

Equialt Qualified Opportunities Zone Fund,

LP and Subsidiaries consolidated financial statement

23 December 31st, 2008. This is going to be the audit I

24 believe your familiar with. Please take a look at

25 that. The Bates numbers run from Equialt00003171 to

'

I ,

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Page 131

1 3181.


3 identification.)

4 BY MR . DEE :

5 Q Can you go page 3 of 11 . When you ' re

6 ready -- you let me know when you ' re ready.

7

8

l\

Q

I' m ready .

Okay. Report of independent registered

9 public accounting firm, do you see that?

10 A Say that again .

11 Q It's page 3.

12 MR . HARAY : Page 3 , you ' re on 5 .

13 A Oh . I was looking at the bottom . Yeah .

1,;

iS

16

17

18

19

20

21

22

23

24

25

I ' m sorry.

MR . HARAY :

A Okay . Yes ,

BY MR . DEE:

Two different page numbers.

I see thal .

Q Okay. Do you see the paragraph just above

the auditors signature where it say capital funding?

A Ye s .

Q All right. Let me just read it on the

record. "The company is subject to the risk

certainties associated by the business that has not

yet generated revenues. The company's continued

operation are dependent upon its ability to raise


Page 132

1 additional funds. There can be no assurance that the

2 company will be able to secure any additional

3 financing on acceptable terms and conditions or at

4 all . "

5 Were you involved in this audit?

6 Yes . I provide t he information to the

7 auditors based on what was in QuickBooks .

8

9

Q

A

Okay . It ' s just information you provided?

Ye s . I - - yeah . They ' re an independent

10 accounting firm so I couldn ' t be directly involved .

1. 1 ~Je just have to provide information .

12

13

14

)5

16

17

]8

19

20

21

22

23

Q And that was the extent of your involvement?

A Yes .

Q Have you read the audit?

A Yes , I have read the audit .

Q And it hadn't generated any revenues, had

it?

f\ No , it had nol . The REIT was pretty new at

this point i n t~me . It started August 10 , 2018 .

Q Did it pay any interest expense? Did it pay

any interest to investors?

MR . BARAY : So just to - - for the record, t o

be c~ear , she referenced the REIT a moment ago and I

24 think you ' r e - -

25 A Okay .

'

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1

Page 133

MR . HARAY : Just to make sure you ' re on the

2 same

3 I ' m sor::y .

4

5

6

7

8

9

10

1 1

12

13

MR. HARAY : t he same entity .

A Oh this is the QOZ . I ' m sorry . Qualified

Opportunity Zone .

or

BY MR . DEE :

Q You have a CPA certification, correct?

A That is correct .

Q You can read the income statement on there

the

A

Q

profit and loss it's also called, correct?

That is correct .

All right. And when you earlier responded

1 11 that there were revenues , you read that f rem the

15 statement, correct?

16 A Repeat that?

1 ·1 Q Or from the audit?

18 A Repeat that?

19 Q I said, when you earlier testified or you

20 were reading from the audit, the exhibit, that there

21 were no revenues --

22

23

24

Q

A

MR . HARAY : You read i t I think.

I read it , you agree .

I thi nk you asked me and I was supposed to

25 respond if there w~s no d~stributions .

-

I

II


1

2

3

4

Q

A

Page 134

That ' s not -- that was another question.

'.•!R . HARAY : Can we start f r·esh, please?

So I ' m sorry . Yeah .

BY YlR . DEE :

5 Q Well, I think we're done with this. Let me

6 go to fund 5. This is the REIT.


8 identification.)

9 BY MR . DEE:

10 Q This is the audit for Equialt Secured Income

1 1 Portfolio REIT Incorporate and Subsidiaries . The

12 Bates numbers run from Equialt00003182 to 3201.

13 MR. HARAY : Do you have a copy? Thanks .

14 BY MR . DEB :

15

16

17

18

19

20

21

Q

Q

Q

Do you have the exhibit?

MR . HARAY : She docs .

Yes , I do .

BY MR . DEE:

Are you familiar with this?

Yes , I am .

All right. Let's turn to the auditors

22 opinion under related party transactions. "As

23 discussed'' --

24

25

-

MS . MASELLA : What page?

~m . D~E : Page 3 . The page :1umber is righi::

-


Page 1 35

1 ;:iL the top .

2 BY MR . DEE :

3 Q "As discussed in note 5 to the consol.idated

~ financial. statement, the company has significant

~ transactions with entities affil.iated through common

6 ownership which coul.d infl.uence the extent of cost

7 incurred by the company. The operating resul.ts or the

8

9

10

1 1

12

13

1 4

15

16

17

18

19

20

2 1

22

23

24

25

financial. positions of the company coul.d have been

significantl.y different if they were autonomous."

Do you know what the auditors meant by that?

A I ' m no~ sure what they meant by that .

Q Okay . Your invol.vernent in this audit was

just to provide information to the auditor?

A Yes . Keep it independent . We provided the

income statements and balance sheets and transactions .

Q Correct me if I'm wrong, you were hired by

the REIT at the end of '18 or pretty cl.ose to 2018 at

the end; is that correct?

A Yes . I started working on the REIT in about

2018 , yes .

Q

A

Q

What month?

I think it was like aboul April .

Woul.d you say you were real.l.y famil.iar with

the accounting of this fund?

A I would have to say I was .

-

I

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2

3

4

6

7

8

9

10

11

12

13

1 4

15

16

17

18

19

20

21

22

23

24

25

Q All right . This is one of the few

~age 136

this

is only fund that ' s showing a profit, correct?

A Yes . It ' s showing net income of -- yeah .

Net income of 107,000 .

Q Would you have any dispute with the net

income number of $107 , 572?

A I would not .

Q And why are you so confident?

A Because it was audited , one , and we had

to I had to prepare t he information myself , so I

guess I ' m comfortable vii th i:he information that I ,:>Ut

in and the due diligence and care taken by the

auditors to prepare this report .

Q So it don ' t cloud the record, but let me

just go back to fund ls 1, II and EA SIP, LLC.

You're not confident in those funds or those

funds numbers; is that accurate?

A That is accurate .

Q Is there somebody at Equialt that is

confident in those numbers?

A I can ' t speak if there ' s anyone Lhere that

is confident about it , but accounting produces numbers

and we don't really have anyone there right now i:hat

has been there t hat long since the information is

produced .

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1

2

3

4

5

6

7

8

9

10

11

12

Page 137

Q Prior to you taking care of the bookkeeping

of the funds, it was just Michelle Rodriquez Diaz?

A When 1 came on board there was Michelle

Rodriquez Diaz and William Brown t hat was just

assisting wi&h accounts payable .

~~ - HARAY : I believe she testified earlier

there was also the outs i de accounting firm .

A Ye s .

Q

A

Q

BY MR. DEE:

Of Dearolf & Mereness?

Yes.

But they were only there towards the end --

13 at the end of each year to do year- end adjustments?

14 A As far as I'm awa r e .

15 Q So actually the accounting prior to you fell

16 on -- or the bookkeeping fell on Michelle Diaz and

17 William Brown?

18 A Willi am Brown more Lhan accounts payable

19 capacily at that time , yes .

20

21

22

23

24

25

Q How long has William Brown been there? Do

you know?

A I think it has been maybe less than a year

or about a year at least .

Q

A

Well, how long was Michelle Diaz there?

I 'm not sure . Longer than t hat .

·,

I

'


Page 138

1 Q Who was before though? Do you know?

2 l\ I don ' t remember t he name of lhe firr.i, but

3 i t was an external accounting firm that used to do the

4 books .

Q Excluding the one you have already

6 mentioned, Dearolf & Mereness?

7

8

A

Q

Yes . They proceeded Michelle .

The accounting firm that you know, but you

9 don't know the name of, but they ' re a professional

10 firm you think?

11

12

13

1~

1 5

)6

17 p . m.

P..

Q

A

Q

T would hope .

Okay. But you don't know?

I don •~ know .

Let's go off the record at 2:42 p.m.

(A brief recess was taken.)

MR. DEE : Let ' s go back on record at 2 : 51

18 BY MS . JOHNSON :

19 Q Has funds 1 or II taken any loans or lines

20 of credit from any banks or similar credit facilities?

2:

22

A

Q

Not tnat I ' m aware of .

Have they taken -- fund 1 or II taken any

23 loans from any of the principals?

24

25

A

Q

Principals , meaning?

Any of the executives of the company.


1

2

3

4

5

6

7

8

9

1 0

J 1

12

13

14

A

Q

?age 139

Loans? Not that I ' ~ aware of .

What about -- has funds I or II taken any

loans from each other or any of the other Equialt

funds that we've talked about today?

A There ' s quite possioly, but I can ' t

absolutely sure speak to it without looking again at

the books , but at the same time T can ' t completely

rule it out .

Q Okay. If they have, how would that be

reflected on the QuickBooks?

A I t would have been refl ected as a loan .

Q Would it be listed from entity to entity?

A

Q

It will have t h e loan and entity ' s name .

Okay. Same question for the EA SIP fund.

1~ Has it taken any loans from any commercial

16 banks or credit facility?

17 A I ' m not absoluLe l y sure , but if it did, it

18 would be reflected on the balance sheet on the loan,

19

20

21

22

23

and en t i l y name . For the -- I ' m sorry . For any

b anks , e x ternal entities? No . I ' m sorry .

Q

A

Q

What about line of credit?

No . Kot that I ' m aware of .

Okay. But I think you were getting there.

24 Has the -- just for the record, has the EA SIP fund

25 taken any loans from any of the other Equialt funds?


1 A

Page 140

If it has , it would have been reflected on

2 the balance sheet on t he loan and the entities or the

3 fund ' s name .

11 Q Would you be involved in any of the terms of

5 the loans from one fund to the other?

6 A The terms , no , I would not .

7 Q Who would have been -- who would have

8 brokered those terms? Who would have set out the

9

1 0

11

1 2

1 3

14

terms?

A I ' m not sure . Maybe Brian or Tony .

Q Have either Brian, Tony or Mr . Rybicki

loaned the company any of the funds any money?

A Not that I ' m awa r e of . Maybe a n initia l

capital investmen t from way back, but otherwise, I ' m

15 not aware of any .

16 BY MS . ROWE :

17 Q Other than the discrepancies -- the

18 potential discrepancies that you testified to earlier

19

20

in the QuickBooks, are there any other sort of

rnischaracterizations or errors that you think may

21 change your opinion of the books and records?

22 A lt ' s hard to say without gei:ting more time

23 to look over i: . From what I ' ve seen so ~ar , it

24 hasn ' t been ln the areas t hat I ' ve mentioned before .

25 We ' ve had repairs and maint e nance , whether it ' s a

'

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1

2

3

4 i:.

6

7

8

9

1 0

11

Page 111

repair o r it ' s a capital item, whether in the do to do

f r om -- some of the managemen t fees i s :::ecorded as a

do-to- do from versus management fees . They may or may

no t been more , but I j ust have n ' t had the time t o look

back al them as yet.

Q And are you aware of whether

MR . ZAMORANO : Excuse me .

YlR . HAKAY: One second .

Mr\ . ZAMORANO : She ~ia s going to ans1ser

something and you were going to talk to her .

MR . HARAY: No . She was talking . The

12 question was coming .

13 YlR . ZAMORANO: I think she was going to

1 1 answer something .

15 BY MR . HARAY :

16

17

18

19

20

21

22

Q

A

Q

A

Were you speaking.

No . I was done . And then she was talking .

MR. ZAMORANO: Okay . I ' m sorry .

BY MS . ROWE:

Are you aware of -- I 'm sorry .

MR . HARAY : I ' m sorry .

Just to c l arify . So some of the accounts

23 that we have notice the discrepancies are the do-co- do

24 ::rom accounts . Ask my accountant may have a balance

25 fro the i r other loan t o shareholder accounts . Those

'


Page 142

1 the main accounts a nd t h e repairs and maintenance ~hat

2 I have s aid. Construction improvements , anything on

3 fixed asset .

4 BY V.S . ROWE :

5 Q Regarding the REIT, are the -- are you ware

6 of whether the investors funds are held in an interest

7

8

9

bearing account?

A The investor funds? ~ot that I ' m aware of .

Q Okay. There is a reference to -- in the PPM

10 to some sort term investments. Do we have any

11 knowledge of what those short-term investments might

12

13

14

15

be?

P..

Q

No . I ' m not aware of those .

BY MR. DEE :

A while back in fund 1 I was going to talk

1 6 about distributions and I think I cut myself off and

17 never introduced the exhibit. This is the total

18 distributions. If you take a look at Exhibit 5 I have

19 in my hand and I'm going to hand to you -- it was 7.9

20 million, but exhibit 19 is the distributions for 7.96

21

22

23

24

25

million almost 8.

Q


identification.)

BY MR. DEE :

Your -- if you take a look at - - under the

I


Page 143

1 number for January 1, 2019, your initials DAS -- I 'm

2 sorry. Are those your initials, DAS, there?

3 A Those are my initjals .

4 Q Okay. Can you explain what those

5 distribution are?

6 A Those amounts were on the books as re l urn of

7 funds that was originally invested by Brian Davison

8 and Barry Rybicki . However , we coul d not find

9 origina l investment , so Mr . Davison gave me the

10 d i rect i on thac he is noc going to worry about il so I

11 should put i t as a distribution for now .

12

13

14

Q

A

Q

Do you see the amount of 2.7 million there?

Yes , I do .

That wasn ' t a distribution to pay off a note

15 receivable that Equialt fund 1 held on Mr. Rybicki who

16

17

18

19

20

would hold the note payable?

A I ' m not aware of that .

'.•!S. ROWE : Ca r. I just follow- up real quick?

BY MS . ROWE :

Q Just to clarify. Your statement that the

2 1 distribution to Davison was a return of funds, but the

22 record couldn't be found on the initial investment , is

23 that also for the distribution to Rybicki? It ' s the

24 same scenario?

25 A Yes . That applies ther e as well , yes .

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I:


1

2 Q

Page 144

BY MR . DEE :

Okay. Let's see. This is Exhibit 20.


4 identification.)

5 BY MR . DEE :

6 Q Exhibit 20 is a balance sheet for fund 1 as

7 of December 31st, 2011. Would you take a look at it

8 and let me know when you're ready.

9 A I ' m ready .

10 Q All right. Under liabilities and equity,

1 1 liabilities, long-term liabilities, investment, do you

12 see the names of Barry Rybicki and Brian Davidson?

13 A Yes , I do .

14 Q Per the document, they have $3 million next

15 to each of their names, correct?

16 A That is correct .

17 Q All right. Just a reference, there is under

18 checking and savings Wells Fargo 1045, there's an

19

20

21

amount of 6.1 million in there; is that correct?

A Tha~ is correct .

Q Is it safe to assume that that 6.1 million

22 sitting in the checking account predominantly came

23 from Mr. Rybicki and Mr. Davison?

24 A Per the document , that can -- that

25 conclusion can be drawn .

I

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1

2

3

4

5

Q

Q

?age 1 45

Okay. All right. Take a look Exhibit 21.


identification.)

BY MR . DEE:

Go to page 3. And this is exhibit is fund l

6 balance sheet as of December 31st, 2012. Look under

7 long-term liabilities and then investment, do you see

8 Mr. Davison or Mr. Rybicki's name there?

9 P.. No , I do not .

10 Q Do you have any idea why?

11 A No , I do not .

12 Q Is it safe -- well, can I assume that they

13 were probably paid their initial investment? Or let

1 4 me rephrase it. They were paid back their original

15 investment.

16

17

18

19

Q

A

MR. HARAY : I f she knows .

BY MR . DEE:

If you know.

I do not know . I ' ll have to loo k further

20 into the details to verify .

2 1 Q Could you also draw the conclusion since

22 their names are not there and neither is there $3

23 million a piece there?

24 MR. HARAY : I think she j ust said she didn ' t

25 know , so

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Page 146

MR. DEE : Well , I asked her to draw a -- i f

2 we could draw a conclusion .

3 BY MR . DEE :

4

5

6

7

8

9

10

11

12

13

14

Q

P..

Can you draw that conclusion?

I find it difficult Lo draw a conclusion on

information that was way before I was employed . I

don ' t want to pul myself in that position until I've

seen furthe~ details.

Q Okay. But you are a CPA, correct? You are

certified?

A

Q

A

Q

I am.

I think we established that .

Absolutely.

And you can read documents like financial

15 reports?

1 6

17

18

19

20

21

l\ Yes .

Q And you are asked opinions from time to

time; is that true?

A Well , I &ry not to give an opinion on

unaudited documents.

Q You don ' t give any opinions on any unaudited

22 documents?

23

24 A

MR . HARJI.Y : She didn ' t say that .

I try not &ogive an opinion on unaudited

25 documents or documents that I have to look more

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Page 147

1 closely on . 2 MR. DEE: You guys have a ny other questions?

3

4

6

7

8

9

10

1.1

12

13

14

15

16

17

18

19

20

21

??

23

Mark this cxhibi~ -(SEC Exhibit No . 22 was marked for

identification . )

BY MR . DEE:

Q Exhibit 22, it's titled Reverse Opening

Balance of $6 million.

MS . MASELLA :

that?

Twelve one --

Do you have another copy of

MR. DEE: No , I don ' t . I looked . I ' m going

to hand this to you and the three o[ you ca~ split i l.

MS . MASELLA : Okay .

BY MR . DEE :

Q It ' s dated 12/1/19. General journal

transaction, accrual basis December 31st, 2012.

Debit, credit DM, which is not you. 3 million, 3

million. The memo says reverse for both Barry Rybicki

and Brian Davison, both are 3 million-dollar debits.

I'm just reading it for the record. And then there

was $6 million and there's a notation, WF. I'm

assuming it's Wells Fargo 1045 checking. Would you

review that.

?.4 Okay. Have you read the document or

25 reviewed it?


Page 148

A Yes , I have . 1

2

3

4

Q Would that document and the information on

it help you make a decision or draw an opinion that

their -- Mr. Rybicki and Mr. Davison's initial

5 investment was returned to them?

6 A It doesn ' t help me at all . It ' s hard for me

7 to comment on it 11ithout , I guess , the supporting

8 documents or expla~acion as to why the journal entry

9 was made by Dearolf & Mereness .

10 Q My last question , I think.

11 FUnd 1. Under investing activities -- this

12 is Exhibit 15, statement of cash flows. The fund is

13 EA SIP. There appears to be a note receivable from

1 ,1 Equial t Fund, LLC , there appears to be a note

15 receivable for 128 East Davison, LLC and a receivable

16 for 31078 Avenue, if you would look there and confirm

17 whether that's on the document or not.

18 A The note receivables for 1 . 1, 820 , 000 and

19 $568 , 000 .

20 Q But it's on the document? Those are note

21 receivables for that fund, EA SIP?

22 71. Yes .

23 Q And the note payable would be held by the

24 other parties, correct?

25 A Yes .


1

2

3

4

5

6

Page 1-19

Q One of those is a fund, so they borrow money

or they 1oan money to each other?

n We ll, &hese t ransactions in particular we

were recent rev i ewing i t and what they do is that ,

they sell properties to each othe r . I am not s ure ,

bu l I think one or two of these should have been a

7 sale out right to the property or either the property

8 ac&ually - - for 31078 in part icu l ar I can speak to, so

9 le & me not cormnen L on the other to with uncertainty .

10 The property was actually purchased by

11 3J078 , but they got recorded o~ -- EA SIP actually

12 owned the property , bu& at the time I think t hey had

13 il as 31078 . Okay . So 31078 assigned the property .

14 31078 assigned the property to EA SIP, however, when

15 they saw t he funds coming, they assumed tha& it was a

16 loan, but i t was not . I can on l y speak to the 568

17 just from memory . I ' m not sure about the 1 . ~ or t ~e

18 820 .

19

20

21

22

23

24

25

Q Thank you.

BY MS . JOHNSON :

Q Just so I'm c1ear. So you said that they

incorrect1y entered it as a 1oan. It shou1d have been

marked as straight-up purchase?

A Yeah . The property was assigned and so the

fu nds leaved EA SIP, but the propert y was actuall y

'


Page 150

1 assigned to them so chey should actually paid for ~t .

2 BY MR . ZAMORANO :

3 Q I just have a couple follow-up questions

4 that I didn ' t ask you in the beginning.

5 Besides conversation with your attorneys,

6 have you had any conversations concerning this

7 investigation with Mr. Davison?

8 A I guess you have to be more specific . In

9 terms of if T ' m going to need app~oval to Lake the

10 flight to come here because I got a subpoena , yes .

11 I ' ve had conversations Lhat I received a subpoena co

12 that extent .

13 Q Has he commented to you what he think this

11 investigation was all about?

15 A No , he has not , out we have had to provide

1 6 to potential auditors the fac t that we have a n SEC

17 inquiry and thac e-mail I may have been copied on just

18 for audit purposes .

19 Q And is that with respect to the two audited

20

21

22

funds?

A

Q

Say ic again .

That ' s with respect to the two funds that

23 are audited?

24 A In trying to secure a audit firm .

25 Q In order to secure an audit firm for those


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3

4

5

6

7

8

9

10

1 1

12

13

J. 4

15

16

17

18

19

20

21

22

23

?age 151

two funds, correct?

A For che Equialt Secured I ncome Portfolio

REIT and the Equialt Qualified Opportuni l y Zone , yes .

Q Besides Mr. Davison, have you had any

conversations with any of your colleagues about what

this investigation might entail?

A No , I have not .

Q Or anybody else other than Mr. Davison and

your colleagues? Anyone outside the company?

A No , I have not .

Q Ms. Stoddart, I don't think we have any

further questions for you at this time. However, if

we feel that it's necessary for you to come testify

again, we'll consult with your attorneys.

Is there anything that you would like to

add, correct, amend or supplement to your testimony

that you provided today?

A Nothing at this time .

MR . ZAMORnNO: Counsel , do you have any

c l arifying quescions?

MR. HARnY : No .

MR . ZAMORANO : Okay . That being the case ,

we are done . Off the record at 3 : 10 .

24 (Whereupon, at 3 : 10 p . m., the exarninacion

25 was concluded . )

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PROOFREADER' ~ CF.RT I FI CA'l' P.

1 11 The Ma t t e r of:

\'Ii tness :

L . .le Nu:nber :

Dale :

Location :

CERTAI N UNREGI STERED SECURITl;S

Denve r S t odcar~

::L- 04167-l\

':'uesda y , Decer:ioer S , 2:)19

l'-'Jiami , Fl ,

Th l s is to ce~ t ify t hat I , Maria E . Paulsen ,

(the ~ndersigned) , de here by ce~ti~y thal tie

foregoing transcrip~ is D comp:e t e , true and accura Lc

transcri~t i on of al: ~atters co~tained on the r ecorded

investigative testimony .

{D e)


1

2 C E R T I F I C A T E

3 STA'I'E Of ~' LOR T DA

1 CO0NTY 01!' PALM BEACH

6 I , Caretha \0/isdem, P.:::ofessiona: Court Reporter and Notary Public in and for the State of Florida at

7 Larqe , do hereby cert.i.fy thut T was au,.horized to and did report said haarjng in stenotype; and that the

8 f oregoing pages are a true and correct transcription of my shorthand notes of said hearing .

'J I furthe r certify that said Hearing was taken

10 at the time and pl ace herei~above set forth and that the taking o: !,aid :,earing was conunenced and completed as

ll hereinabove ~ct o~t .

12 I further certify that I am not ari attorney or counsel ot any of the parties, nor am 1 a relative

13 or employee of any attorney or counsel o t any party connected wi t h the act i on, nor a~ I fJnanci a l ly

1 4 incerestcd in the action .

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Dated this 10th day of Decembe.r , 2019. ~-

Careth;:, IHsdo,r, , Professional Court Reporter


EXHIBIT 2


Page 1

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

In the Matter of: )

) File No. FL-04167-A

CERTAIN UNREGISTERED SECURITIES )

WITNESS: Dale Tenhulzen

PAGES: 1 through 61

PLACE: 801 Brickell Avenue

Suite 1800

Miami, Florida 33131

DATE: Friday, December 20, 2019

The above-entitled matter came on for hearing,

pursuant to notice, at 10:07 a.m.

Diversified Reporting Services, Inc.

(202)467-9200


2 (Pages 2 to 5)

Page 2

1 APPEARANCES:2

3 On behalf of the Securities and Exchange Commission:4 ANDRE ZAMORANO, ESQ.5 Division of Enforcement6 Securities and Exchange Commission7 801 Brickell Avenue8 Suite 18009 Miami, Florida 33131

10 (305)982-639311 [email protected]

13 On behalf of the Witness: 14 ALLAN LERNER, ESQ.15 Law Office of Allan M. Lerner, P.A.16 2888 East Oakland Park Boulevard17 Fort Lauderdale, Florida 3330618 (954)563-811119

20

21

22

23

24

25

Page 3

1 C O N T E N T S2

3 WITNESS EXAMINATION4 Dale Tenhulzen 656 7 EXHIBITS: DESCRIPTION IDENTIFIED8 53 Subpoena 69

10 54 PPM 251112 55 e-mail 261314 56 Document 531516

1718

1920

2122

2324

25

Page 4

1 P R O C E E D I N G S2 MR. ZAMORANO: We are on the record at 10:073 on December 20, 2018.4 Mr. Tenhulzen, do you swear or affirm to tell5 the truth, the whole truth, and nothing but the truth?6 MR. TENHULZEN: I do.7 Whereupon,8 DALE TENHULZEN9 was called as a witness and, having been first duly

10 sworn, was examined and testified as follows:11 MR. ZAMORANO: Please state your full name and12 spell your name for the record.13 THE WITNESS: Dale Lister Tenhulzen, D-A-L-E14 L-I-S-T-E-R T-E-N-H-U-L-Z-E-N.15 MR. ZAMORANO: Just by way of brief16 introduction, again, my name is Andre Zamorano, I'm an17 officer of the Commission for the purposes of this18 proceeding. 19 This is an investigation by the United States20 Securities and Exchange Commission in the matter of21 Certain Unregistered Securities transactions to determine22 whether there have been violations of certain provisions23 of the federal securities laws. However, the facts24 developed in this investigation might constitute25 violations of other federal or state, civil or criminal

Page 5

1 laws.2 Prior to the opening of the record you were3 provided with a copy of the formal order of investigation4 in this matter, and it's been supplemented, and both of5 those documents will be available for your examination6 during the entire course of this proceeding.7 Have you had an opportunity to review the8 formal order?9 THE WITNESS: Yes.10 MR. ZAMORANO: Prior to the opening of the11 record you were provided with a copy of the Commission's12 Supplemental Information form. A copy of that notice was13 attached to your subpoena.14 Have you had an opportunity to read that15 document?16 THE WITNESS: Yes.17 MR. ZAMORANO: Do you have any questions18 concerning that notice?19 THE WITNESS: No.20 MR. ZAMORANO: Are you represented by counsel?21 THE WITNESS: Yes.22 MR. ZAMORANO: Counsel, can you please identify23 yourself for the record?24 MR. LERNER: Allan Lerner, Law Firm of Allan25 Lerner, P.A., 2889 East Oakland Park, Florida 33306,


3 (Pages 6 to 9)

Page 6

1 telephone number (954) 563-8111.2 MR. ZAMORANO: Sir, a copy of the subpoena is3 going to be marked as Exhibit Number 53.4 (SEC Exhibit No. 53 was marked5 for identification.)6 EXAMINATION7 BY MR. ZAMORANO:8 Q It is both a testimony subpoena and a subpoena9 for documents. 10 Do you recognize that document?11 A Yes.12 Q Do you understand that you're appearing here13 today to provide testimony pursuant to that subpoena?14 A Yes.15 Q Just going to go over some background questions16 before we get into the substance of your testimony.17 Have you ever been known by any other names18 other than the one that you stated on the record?19 A No.20 Q Your date and place of birth?21 22 Q Country of citizenship?23 24 Q Marital status?25 A Married.

Page 7

1 Q And what is your primary residence address?2

4 Q How long have you lived there?5 A 2014.6 Q And your business address?7 8 Q How do you spell that?9

11 12

14 Q Okay. Do you have a business telephone 15 number?16 17 Q And a personal telephone number?18 19 Q And do you have a business e-mail?20 21 Q And do you have a personal e-mail address?22 23 Q Are you now or have you ever been an officer or24 director of any publicly held company?25 A No.

Page 8

1 Q Are you now or have you ever been a beneficial

2 owner directly or indirectly of five percent or more of

3 any publicly held company?

4 A No

5 Q Are you now or have you ever been a beneficial

6 owner directly or indirectly of any privately held

7 company?

8 A Excuse me?

9 Q Privately held company.

10 A Have I been an owner, yes

11 Q What's the name?

12 A Red Apple Resources

13 Q What type of business was Red Apple Resources?

14 A Fund raising, non for profits, schools,

15 Synagogues, churches

16 Q And were you the owner of that company?

17 A Partial owner

18 Q And is that company active?

19 A No

20 Q When did it cease being active?

21

23 Q Okay.

24 Are you now or have you ever been a

25 manager or member of any privately held company other than

Page 9

1 the ones you've just mentioned?2 A What would you consider Live Wealthy 3 Institute?4 Q Is that incorporated?5 A It's an LLC.6 Q Limited liability company?7 A Right.8 Q Where is it organized?9 A Wyoming.10 Q And who are the owners of Live Wealthy?11 A Just myself.12 Q When was that incorporated -- or organized13 rather?14 A I don't recall the exact date.15 Q More than five years ago?16 A Yeah.17 Q Does Live Wealthy Institute have any bank18 accounts?19 A Yes.20 Q Where does it have its bank accounts?21 A Chase Bank.22 Q For how long has Live Wealthy Institute had its23 bank accounts at Chase Bank?24 A Since inception.25 Q Any other banks that you have accounts at?


4 (Pages 10 to 13)

Page 10

1 A No.2 Q What about securities accounts?3 A Securities, no securities.4 Q Have you ever testified in any proceeding5 conducted by the staff of the Securities and Exchange6 Commission?7 A No.8 Q A U.S. or foreign federal or state agency?9 A No.

10 Q A U.S. or foreign federal or state court?11 A No.12 Q Stock exchange?13 A No.14 Q Financial Industry Regulatory Authority?15 A No.16 Q Any other self regulatory organizations?17 A No.18 Q Have you ever testified in any arbitration19 proceeding related to securities transactions?20 A No.21 Q Have you ever given a deposition in any court22 proceeding?23 A No.24 Q Have you ever been named as a defendant or a25 respondent in any action or proceeding brought by the

Page 11

1 SEC?2 A No.3 Q Or any other U.S. or foreign federal 4 agency?5 A No.6 Q State securities agency?7 A No.8 Q Finra?9 A No.10 Q Self regulatory organization?11 A No.12 Q Or an exchange?13 A No.14 Q Have you ever been a defendant in any action15 alleging violations of the federal securities laws?16 A No.17 Q Have you ever been a defendant in any criminal18 proceedings other than one involving a minor traffic19 offense?20 A No.21 Q I'm going to ask you a couple of questions,22 brief questions about your educational history. Did you23 attend college?24 A Yes.25 Q Where did you attend college?

Page 12

1 A University of Iowa.2 Q Did you graduate?3 A No.4 Q What did you study?5 A Premed, four years.6 Q Any other college education?7 A No.8 Q Have you taken any securities, accounting or9 business related courses since high school?

10 A Business -- question business related, I go to11 insurance seminars and that kind of thing; is that what12 you mean by business?13 Q It would include insurance.14 A That and -- so I've been to many insurance15 seminars. And a course called for a certification for a16 wealth preservation planner.17 Q Certification for planning?18 A Wealth planning, yes.19 Q Who's that certification given by?20 A A gentleman by the name of Rocky Delansisco.21 Don't ask me how to spell it.22 Q And is that in California?23 A No. He's from I believe Illinois or Midwest24 somewhere.25 Q When did you obtain that certification?

Page 13

1 A If I recall it would be probably 2010 or '11.2 Q Do you hold or have you ever held any3 professional licenses?4 A I hold a life license and a life settlement5 license.6 Q From what state?7 A California, and then several other states. I8 think I'm licensed in Florida as well.9 Q Any securities related licenses?10 A No.11 Q Are you or have you ever been an employee of a12 broker dealer investment advisor, investment company,13 municipal securities dealer?14 A No.15 Q Municipal advisor?16 A No.17 Q Transfer agent?18 A No.19 Q Or nationally recognized statistical rating20 organization?21 A No.22 Q Who is your present employer?23 A I'm unemployed. Well, Live Wealthy Institute.24 Q How long have you worked at Live Wealthy25 Institute?


5 (Pages 14 to 17)

Page 14

1 A Since inception.2 Q Did you form the company?3 A Yes.4 Q How many employees does Live Wealthy have?5 A Zero. I just have one part-time.6 Q Who is that person?7 A

9 Q She is not an actual employee; she is an10 independent contractor?11 A Right.12 Q What does she do for you?13 A She handles paperwork, contracts.14 Q Tell me a little bit about the business of Live15 Wealthy Institute.16 A Mainly life insurance and annuities.17 Q It sells --18 A Sells life insurance and annuities. And I teach19 classes.20 Q What type of classes do you teach?21 A First class is tax free retirement.22 Q Do you charge for those classes?23 A No. Second one is asset protection and24 unlocking wealth.25 Q Okay.

Page 15

1 A Third one is the bank.2 Q Okay.3 A And the fourth one is the new asset class.4 Q Which companies are you authorized to sell life5 insurance and annuities for?6 A Many. They're all listed on the State of7 California but I don't know all the names.8 Q Okay. More than five?9 A Yeah, more than five.

10 Q What is the annual sales for life insurance11 products for Live Wealthy Institute for 2019?12 A Not very much for 2019.13 Q 2018?14 A No.15 Q 2017?16 A No. I don't recall all the numbers. Probably17 less than a hundred thousand dollars.18 Q How about annuities for 2019?19 A Zero.20 Q 2018?21 A Probably zero.22 Q 2017?23 A Maybe 500 thousand. That's a contract not24 income, it's the contracted.25 Q I was talking about income.

Page 16

1 A Oh income would just be six percent of 500.2 Q Does Live Wealthy Institute file tax returns?3 A No.4 Q When was the last time they filed a tax return?5 A No, there is no income.6 MR. LERNER: Well, it's an LLC so it would pass7 through to him individually.8 BY MR. ZAMORANO:9 Q Okay.

10 So you individually file tax returns for11 the income that's generated?12 A Yeah, life insurance companies you have to be13 licensed individually not through the corporation.14 Q Okay.15 A So it's a 1099. It's very difficult to get a16 corporate license.17 Q What was your personal income for 2018?18 A I don't recall the exact number.19 Q Approximately would be fine.20 A Net taxable income?21 Q Yes.22 A Probably in the 300s.23 Q And for 2017?24 A Probably 400.25 Q And do you file tax returns?

Page 17

1 A I do.2 Q Do you have an accountant that files those for3 you?4 A Yes, I do.5 Q Who is that?6 A

9 Q Where are they located?10 A Seattle, Washington. Bellevue, Washington11 actually.12 Q I would like to ask you some questions13 concerning the subpoena for documents which have been14 marked as Exhibit 53. The documents have been requested15 under paragraph number C, letter C rather.16 Can you tell me a little bit about what you did17 in order to collect the documents that were requested by18 us in the subpoena?19 A I went through all my client files and pulled20 out any and all related materials.21 Q Are those client files electronic or are they22 hard copy?23 A They're hard copy. But then they were put in24 electronic to send.25 Q How many of your clients have purchased


6 (Pages 18 to 21)

Page 18

1 investments from Equialt?2 A I don't recall the exact number.3 Q Approximate number. More than 50, less than 50?4 A Probably more than 50.5 Q Where are those clients located primarily?6 A Southern California.7 Q Any other states?8 A Yes, there is but spotted.9 Q What states?10 A Maybe North Carolina, maybe Michigan, Arkansas.11 I don't recall the states. If they're out of state12 they're referrals.13 Q Do you recall or do you know whether you have14 produced a list of clients that invested in one or more of15 the following investment funds? Equialt Fund, LLC;16 Equialt Fund II, LLC; E-A-S-I-P, LLC; Equialt Qualified17 Opportunity Fund, LP; and the last one is Equialt18 Qualified Security Portfolio REET.19 A I recall it's only the first two.20 Q First two. So the Equialt Fund, LLC, and21 Equialt Fund II, LLC, are the two funds that you have22 clients that purchase investment funds. Is that correct?23 A I'm going to assume that, yes.24 Q And just for the purpose of this testimony I'm25 going to refer to those two entities as the funds. Is

Page 19

1 that okay?2 A That's fine.3 Q Just for the ease of reference.4 Who was responsible for collecting the documents5 that we requested?6 A Myself and Sarah Williams.7 Q And how long do you typically retain client8 files?9 A I've never destroyed clients files unless they10 die or they -- or if they don't work with me anymore.11 Q Okay. Does your business retain electronic12 documents such as e-mails?13 A Yes.14 Q Does it do it on a personal dedicated server or15 do you do it through some service provider like --16 A No, it's our own computers. And I've got Red17 Tail; is that what you're asking?18 Q Yes.19 A Red Tail is the service I use.20 Q And did you personally review your e-mails to21 determine whether there were documents that were22 responsive to our request for documents?23 A Yes, we both did.24 Q And when you say both you're referring to25 ?

Page 20

1 A Yes, . And we used every key search2 word we can think of.3 Q Okay. Are there any documents that we requested4 that have been destroyed in the past?5 A No.6 Q Or that you're withholding for any particular7 purpose?8 A No.9 Q Does Live Wealthy Institute have a physical

10 office?11 A No.12 Q Just a PO box that you mentioned?13 A PO box, and by law I have to keep files in one14 location under lock and key.15 Q Okay.16 A So the only place for me to do that is my home17 because I have clients from Northern California to18 Southern California.19 Q So the client files are maintained at your home?20 A Yes.21 Q How many clients does Wealth Institute have?22 A I'm going to assume there is between 170 to 200.23 Q How do you obtain your clients?24 A Through my classes and referrals.25 Q Where do you hold those classes or seminars?

Page 21

1 A In conference rooms.2 Q Do you advertise?3 A No, I'm doing mailing.4 Q Do you solicit clients through the internet?5 A No. I have a website page but it's just a6 landing page, but they can contact me if they want.7 Q How about cold calls?8 A No.9 Q Newsletters?10 A Only to clients.11 Q Radio?12 A No.13 Q Television?14 A No.15 Q When did you begin offering or selling16 investments in the funds?17 A I believe I tested it in 2013 but never really18 started until 2014.19 Q What do you mean that you tested it in 2013?20 A I believe I had two clients.21 Q You sold investments in the Equialt funds to two22 clients in 2013?23 A Yes.24 Q And you said you tested it, what did you do?25 A I wanted to make sure that they would pay


7 (Pages 22 to 25)

Page 22

1 monthly, I wanted to make sure everything was legitimate2 and through my due diligence.3 Q What due diligence did you conduct?4 A I conducted talking first of all to the business5 manager Barry Rybicki.6 Q Do you know how to spell his last name?7 A R-Y-B-A-K -- I can look it up if you need me to.8 Q R-Y-B-I-C-K-I. Does that sound about right?9 A Yes.10 Q Okay. And you spoke with Mr. Rybicki?11 A Yes.12 Q Did you speak to anybody else at the company13 about the funds?14 A Yes, also Brian Davison.15 Q Who is Brian Davison?16 A I believe he's the president of the company.17 MR. LERNER: What was Rybicki's position?18 THE WITNESS: I think it's business manager.19 MR. LERNER: At the time?20 THE WITNESS: Yes.21 BY MR. ZAMORANO:22 Q In addition to speaking to them did you do any23 other due diligence?24 A Yes.25 Q What's that?

Page 23

1 A The way I found the company I was at a life2 insurance seminar, agents get invited to different3 seminars to learn more about life insurance. I was4 sitting next to a gentleman at the class and we were5 talking about our practices, and I usually don't talk to6 many people at these but I liked this gentleman and our7 practices were very similar so we started talking about8 annuities and how we're both looking for income for9 clients as well as growth, so he's the one who introduced

10 me to Equialt, he said he uses Equialt as an income11 employee.12 Q Who is that person?13 A His name is Ron Stevenson.14 Q Where does Mr. Stevenson live?15 A Prescott, Arkansas.16 Q So Mr. Stevenson introduced you to Barry17 Rybicki?18 A Yes, gave me his information.19 Q Okay. And what else did you do as far as due20 diligence is concerned?21 A Well, I read that that fund one I believe it is.22 Q What did you read?23 A I had questions about there is a section that24 says no commissions are paid, so I asked well how could I25 do this if no commissions are paid.

Page 24

1 Q What were you told?2 A I was given, he said we could do a management3 marketing fee arrangement to fund my classes.4 Q Management marketing fee arrangement?5 A Yes.6 Q To fund your classes?7 A Right. Each class put on costs about $208 thousand.9 Q Going back to your initial conversation with Mr.10 Stevenson, what did he tell you about the Equialt funds?11 A That he felt it was a risk but he felt it was12 safe because there was no -- they buy real estate and13 there was no mortgages on the real estate so they could14 not leverage the real estate. I have some background in15 real estate, I wanted to find out more.16 Q What's that background?17 A Buying, selling real estate.18 Q Did you visit any of the real estate assets19 owned by the investment funds?20 A I did.21 Q Where?22 A Tampa, Florida.23 Q Is that where you met with Mr. Davison?24 A Yes. Their office is there.25 Q And you visited some of the real estate that the

Page 25

1 investment funds reportedly owned?2 A Yes.3 Q You mentioned that you read a document that said4 no commissions are paid, do you recall which document that5 was?6 A I believe it's if I recall it's the fund one.7 Q Fund one, but is it a private placement8 memorandum?9 A Yeah, the PPM. I don't have them with me.

10 (SEC Exhibit No. 54 was marked11 for identification.)12 BY MR. ZAMORANO:13 Q I'm going to show you what we marked as14 Exhibit 54 which is the private placement memorandum for15 Equialt Management Fund, LLC. Do you recognize that16 document?17 A Yes.18 Q And do you recall where it mentions that no19 commissions are paid in connection with this investment?20 A Maybe it's fund two, I may have been mistaken.21 MR. LERNER: Can we go off the record?22 MR. ZAMORANO: Sure. Off the record at 20 till23 11.24 (Whereupon, a discussion was held off the25 record.)


8 (Pages 26 to 29)

Page 26

1 MR ZAMORANO: We're back on the record at

2 quarter till 11

3 BY MR ZAMORANO:4 Q During the break your counsel referenced a

5 private placement memorandum at Bates numbers 1387

6 through 1406, and it's a private placement memorandum,

7 another version for Equialt Fund, LLC, which apparently

8 has a provision that says no commissions will be paid. Is

9 that correct?

10 A That's correct11 Q So when did you first receive any compensation

12 relating to the Equialt funds?

13 MR LERNER: May I speak to him?14 A If I can go to the commission and add to that15 Q Sure.

16 A If there is no commissions and I don't charge17 fees to my clients how do I get paid to do this So he

18 referenced to I could speak to their counsel who put the19 PPM together This gentleman's name was Paul Wassgreen20 (SEC Exhibit No 55 was marked21 for identification )

22 BY MR ZAMORANO:

23 Q I'm going to show you what we've marked as

24 Exhibit Number 55 which is an e-mail from Barry Rybicki to

25 you with contact information for an attorney named Paul R.

Page 27

1 Wassgreen, W-A-S-S-G-R-E-E-N, partner of Fox Rothchild,2 Los Angeles, 1800 Central Park East, Suite 300.3 Is this the attorney you're referring to?4 A Yeah, yeah, but it was before then.5 Q It was before 2016?6 A Yeah, it was 2014.7 Q Okay. What did you and Mr. Wassgreen discuss?8 A I discussed how the PPM was put together, and if9 I'm not getting paid a commission how am I going to get

10 paid.11 Q What did he tell you?12 A That they have a what I used before marketing13 agreement, so we went through that, he wanted to know my14 expenses and how much I paid for my classes, and my15 question was am I able to sell this by being life licensed16 and he said as a PPM I am.17 Q Can you expand a little bit about the discussion18 that you had with Mr. Wassgreen concerning that point?19 A Concerning the PPM?20 Q Concerning whether you had to be licensed with21 the -- in order to have the securities license in order to22 sell these investment funds.23 A It was quite awhile ago. It was 2014.24 Q To the best of your recollection.25 A I just wanted to make sure that I was able to

Page 28

1 sell these legally or do I need a securities license.2 Q What did Mr. Wassgreen tell you?3 A He said no, this is the way this is set up,4 because this is a PPM you are allowed to sell as long as5 you do it through a marketing agreement.6 Q And did you sign a marketing agreement?7 A I recall I did but I cannot find it anywhere.8 Q What did the marketing agreement provide for,9 what were the compensation terms, what you were obligated

10 to do, just tell me a little bit more about that.11 A The compensation was ten percent of whatever the12 deposit was.13 Q Ten percent of the deposit?14 A Yes. So if it was a hundred thousand it was 1015 thousand.16 MR. LERNER: When you say deposit what are you17 referring to?18 THE WITNESS: Them giving a hundred thousand19 dollars to Equialt.20 BY MR. ZAMORANO:21 Q You're talking about investment --22 A Correct.23 Q So for each investment your compensation was --24 A Ten percent of that amount.25 Q Ten percent?

Page 29

1 A Correct

2 Q Did you ever consult with your own counsel about

3 whether you're required a securities base license?

4 MR LERNER: Go off the record

5 MR ZAMORANO: Sure

6 (Whereupon, a discussion was had off the

7 record )

8 MR ZAMORANO: Back on the record

9 BY MR ZAMORANO:

10 Q During the break I had a conversation with your

11 counsel about attorney client communications and it's your

12 intent to assert your attorney client privilege with

13 respect to communications that have taken place with Mr.

14 Wassgreen pursuant to a formal engagement, however, you're

15 not asserting your privilege with respect to

16 communications that occurred prior to that engagement with

17 respect to the question of whether you were required to

18 have a license. Is that accurate?

19 MR LERNER: Yes

20 THE WITNESS: Yes, I'm sorry

21 MR LERNER: He stated yes Just for the

22 record, the engagement occurred in 2016, the formal

23 engagement actually paid him a retainer at that time

24 Prior to that they were not engaged but they did have

25 these communications he has testified to


9 (Pages 30 to 33)

Page 30

1 BY MR. ZAMORANO:2 Q How many communications -- well, first of all,3 what was the nature of the communications, were they4 personal, by telephone, or were they by e-mail?5 A Telephone.6 Q How many conversations do you believe that you7 had with respect to whether the question you needed to be8 licensed in order to sell investments in the Equialt fund?9 A It would only be a couple I'm sure.

10 Q Did he provide you any written opinion letter or11 confirmation or anything in writing?12 A I don't believe so. He did tell me he wrote the13 PPM so that's why I went to him.14 Q With respect to the investments that you sold in15 Equialt wealth funds was the commission that you received16 always ten percent or has it varied?17 A No, it varies. It's ten percent for initial and18 then if I went over half a million in one month I would19 get a two percent bonus.20 Q How was that bonus calculated based on the21 investment amounts as well?22 A Total 500, so it would be two percent of the23 500.24 Q Okay. So in addition to the commission of ten25 percent on the investment amount you received two percent

Page 31

1 of 500 thousand?2 A That's correct.3 Q Okay.4 A And then renewals, they had a four-year contract5 and I negotiated a three-year contract because I didn't6 want my clients to be in for four years, so if they would7 renew after three years then I would get a six percent8 renewal fee.9 Q Okay. And what happened in the event that one10 of your clients decided to redeem his or her investment11 before the expiration of the contract period would you be12 charged back?13 A I did not get charged back in the first, now14 they are doing that but I don't work with him anymore.15 I got one situation where somebody died so the16 trustee asked for the money and they got the redemption17 early. 18 The second one was in the last three years ago19 probably, two to three years ago a woman that invested20 with me wanted out and they sent her her money back and21 then gave me a charge back on that.22 Q Okay. 23 So those two instances that you recall?24 A Yes, that are early. There is only two early.25 Q Okay.

Page 32

1 A They had always stated if there was an emergency2 they could get their money back to them, which a death is3 kind of an emergency.4 Q Right. 5 How was the commission paid, was it paid6 by check or was it paid by electronic transfer?7 A Paid by check.8 Q Always by check?9 A Yes, I believe it was always by check.

10 Q Where would you deposit those checks?11 A Chase.12 Q And do you know who wrote those checks?13 A Barry Rybicki.14 Q Was it BR Support Services, does that sound15 familiar?16 A Yes.17 Q Do you know what the total amount of commissions18 you received for selling investments in the Equialt funds19 over the years?20 A Over 700 thousand.21 Q Documents that have been provided by Equialt in22 connection with this matter indicate that you received23 $1,142,112 in commissions for selling investments in the24 funds. 25 Does that figure sound accurate?

Page 33

1 A The only 1099's I have are the 700 plus that I2 found.3 MR. LERNER: Repeat the number.4 MR. ZAMORANO: $1,142,112.5 BY MR. ZAMORANO:6 Q You said you received 1099's. What are 1099's7 for the record?8 A Instead of a W2 it's a 1099.9 Q Tax form?

10 A Tax form.11 Q Who do you receive that tax form from?12 A BR Support.13 Q And your understanding is that based on the14 1099's that you received that you received approximately15 $700 thousand dollars in commissions?16 A The tax returns.17 Q And the tax returns.18 A From the date you asked January 1, 2015, on.19 Q Did you provide those 1099's in response to our20 request?21 A Yes.22 Q Okay. And did you provide --23 MR. LERNER: What he just said just triggered24 in my mind why there might be a difference. Since he was25 working for them since 2014 you provided the information.


10 (Pages 34 to 37)

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1 THE WITNESS: From '15.2 MR. LERNER: It's only one year, okay.3 BY MR. ZAMORANO:4 Q So you provided the 1099's for the period that5 we requested?6 A Yes.7 Q And did you provide tax returns?8 A Yes.9 Q Okay.

10 A What I was asked to.11 Q Okay.12 MR. LERNER: Did you see any tax returns?13 MR. ZAMORANO: No, I didn't see any tax returns.14 MR. LERNER: Were they requested, Andre?15 MR. ZAMORANO: Not specifically but what was16 requested pursuant to the subpoena was all documents17 concerning any compensation including financial records,18 statements, schedules.19 MR. LERNER: We will get you the tax returns.20 THE WITNESS: I tell you how I keep track of21 it, I do the sheet on the old calculator, the tape sheet22 because I get so many 1099's because there is different23 annuities, different life insurance companies, then24 Equialt, and my life settlement companies. So I keep a25 record and then I write next to it, so that's where I got

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1 all my numbers plus the 1099's2 BY MR ZAMORANO:3 Q Okay.

4 A It was filed every year5 Q Okay. What else do you recall or can you

6 remember about the conversations that you had with Paul

7 Wassgreen concerning the question of whether you had to be

8 licensed to sell these investments, is there anything else

9 that you can recall that he told you?

10 A No11 Q Okay.

12 MR LERNER: If we could go back a second So13 I believe I sent to you this document14 MR ZAMORANO: I didn't see that, I'll look for15 it 16 This was your totals that you put together,17 right?18 THE WITNESS: Correct19 MR LERNER: 789,502 1320 BY MR ZAMORANO:21 Q Who was your primary contact at the Equialt

22 funds, was it Mr. Rybicki or Mr. Davison?

23 A Barry Rybicki24 Q How about a person by the name of Andre Sears,

25 did you have any contact with him?

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1 A Andre was Provident Trust.2 Q Provident Trust?3 A Yeah, IRA custodian.4 Q Self-directed IRA custodian?5 A Yes. I don't know that he worked directly for,6 if that's what you're asking, for Equialt.7 Q You believe he worked for Provident?8 A Yes.9 Q How about Maria Sears, does that name sound10 familiar?11 A No, not at all.12 Q Was it Mr. Rybicki who explained to you the13 investments that were being offered by the investment14 funds?15 A The houses you mean?16 Q The investments.17 A Yes.18 Q The primary investment objective, the risks,19 things like that.20 A Yes.21 Q Did you have these conversations with Mr.22 Rybicki?23 A Yes.24 Q Did Mr. Rybicki or Mr. Wassgreen ever tell you25 whether these securities had to be the securities that

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1 were being offered by the investments funds had to be2 registered with the SEC?3 A Registered, what's the definition of -- you4 mean --5 Q The disclosure of information that's filed with6 the Securities and Exchange Commission.7 A I knew they filed.8 Q Okay.9 A And he said they filed a couple different times.10 Q They told you that they had filed?11 A Yes.12 MR. LERNER: Did they say they filed the13 registration or --14 THE WITNESS: I don't know what, they just used15 the word filed.16 BY MR. ZAMORANO:17 Q Okay. So you're not sure if they're referring18 to a registration statement as opposed to a Form D, they19 just said they had filed with the SEC?20 A I wasn't familiar with the Form D until this21 year.22 Q Okay. 23 How did you find clients for the Equialt24 investment funds?25 A Through my classes.


11 (Pages 38 to 41)

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1 Q Did you discuss Equialt in your classes?2 A No. Never talked about companies only concepts.3 Q Did you talk about the concept that was being4 offered by the Equialt investment fund?5 A The ten percent return?6 Q No, the concept of buying and selling real7 estate.8 A No.9 Q Did you have existing clients that you offered10 investments in Equialt funds to?11 A Only if they needed -- after doing a needs12 analysis if they needed income then I would describe it,13 but never -- only if that was a concern of theirs, lack of14 income.15 Q Beside the classes that you referred to did you16 ever solicit investors for Equialt funds through e-mail?17 A No.18 Q Through cold calls?19 A No.20 Q Newsletters?21 A No.22 Q Or radio or television?23 A No.24 Q Did you provide prospective investors in Equialt25 funds with any written sales or marketing materials about

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1 the Equialt funds that you had prepared yourself?2 A No, only ones that they had supplied me.3 Q So it's your recollection that they provided you4 with some sales and marketing materials about the Equialt5 funds?6 A Yes. I believe it was a trifold.7 Q A trifold?8 A Yes, and other newsletters.9 Q What's a trifold?10 A Where it folds.11 Q Like a brochure?12 A Yes, a little brochure that opens up three13 pages.14 Q Okay.15 A I believe I mailed in other stuff too; didn't I?16 Q Did you provide those written sales and17 marketing materials to prospective clients in the18 investment funds?19 A Prospective.20 Q Your clients that you were considering referring21 or recommending investment in the investment funds to?22 A Yeah, I had a folder, my live wealthy folder23 that had all my investments inside of it. So if somebody24 wanted to know about me after classes and after a meeting25 I would give them that.

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1 Q Was that trifold included in that?2 A Yes.3 Q Okay. 4 When you had a particular client that was5 interested in investing in the Equialt funds what sort of6 information did you provide to them regarding the7 investments, what did you discuss in general?8 A I told them what they were doing as far as9 buying foreclosure homes in Florida, Arizona, and I10 believe there is one other state.11 Q Did you discuss the -- I'm sorry, go ahead.12 A As being a wealth preservation planner I always13 want to make sure their principle is protected, so the14 reason why I liked this fund and this company is because15 they could not put mortgages on the real estate.16 Q Okay.17 A So I felt the best thing -- the worst thing for18 my clients would be as if these two gentlemen died, our19 worst case scenarios, we had 400 homes that were free and20 clear we would get our money back someday after we sold21 the homes.22 Q Okay.23 A That was my biggest thing is principle24 protection.25 Q Did you discuss the interest rate that was being

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1 offered by Equialt fund?2 A Yes.3 Q Did you ever negotiate with Equialt funds the4 interest rate that was being offered to your clients?5 A Yes, I did.6 Q And tell me a little bit about those7 negotiations.8 A There was two particular clients that put in a9 significant amount of money. And they wanted higher10 interest rates if they did so, so one of them negotiated11 on their own and I negotiated for the other one. I12 believe it's two clients.13 Q Did you provide your clients that were14 interested in purchasing or investing in the Equialt fund15 copies of the private placement memorandum?16 A Yes. It's inside each contract.17 Q And debenture, is that where you're referring to18 as the contract, the debenture?19 A I don't remember the name of it.20 Q How about a subscription agreement?21 A I believe it's all in that plastic folder that22 they give with their contracts.23 Q What was in that plastic folder that they give24 with their contracts?25 A The subscription. I'm not sure how you describe


12 (Pages 42 to 45)

Page 42

1 each one but there was several documents in there plus a2 questionnaire.3 Q Accredited investor.4 A Right, accredited investor.5 Q So your recollection is that the packet of6 materials that you would provide to your clients would7 include a private placement memorandum?8 A It came straight from Equialt, I never did it,9 Equialt did it all.

10 Q Okay.11 MR. LERNER: Are you saying that Equialt sent12 the package to the investors and not you or you sent them13 out of your office?14 THE WITNESS: I'm going to try to remember,15 some of them came to me and some went straight to the16 clients.17 MR. LERNER: From Equialt?18 THE WITNESS: From Equialt, yeah.19 MR. LERNER: You would supply Equialt with the20 name of the person interested?21 THE WITNESS: Correct.22 BY MR. ZAMORANO:23 Q And then they would provide the --24 A Then they would send it back with the dollar25 amounts and everything. I would print it out, have them

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1 sign the questionnaire, the front page, and then is it2 called a subscription or the debenture, there is not very3 many pages.4 Q The debenture?5 A Yeah. And then send that and they would send6 all that bound in a plastic container back to the client.7 Q Okay. So it would facilitate some of the8 paperwork that was necessary in order to invest in these9 investment funds?10 A I would give them the numbers, the dollar11 amounts.12 Q When you say they --13 A Barry Rybicki; and then he would send us back14 the filled in dollar amounts and everything.15 Q Okay. 16 Did you ever take possession of any of17 the investment funds?18 A Nobody has ever written me a check in my19 practice.20 Q Okay. 21 Were you responsible for transmitting the22 signed agreements to Equialt funds from your clients?23 A Correct.24 Q So your clients would fill out the paperwork and25 provide it to you and you in turn would provide it to

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1 Equialt fund?2 A Yes.3 Q Did you provide your clients who purchased4 investments in the Equialt funds with any advice or5 recommendations concerning whether to invest in these6 particular funds?7 A No. Not advice, I just gave them options.8 Q Okay. And what options would you give them9 typically?10 A Life insurance, annuities, life settlements, and11 Equialt.12 Q Did you sell private investments in any other13 investment funds besides Equialt?14 A Explain.15 Q Did you sell any other investments similar to16 Equialt?17 A Yes.18 Q Which companies?19 A First Global.20 Q First Global. Okay.21 A Merchant Cash Advance.22 Q Who offered Merchant Cash Advance?23 A First Global.24 Q That's a First Global product?25 A Yeah.

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1 Q Okay. Any others?2 A No.3 Q Woodbridge?4 A No.5 Q So just First Global and Equialt?6 A Yes.7 Q And the investments that were offered and First8 Global was something called the Merchant Cash Advance?9 A That's my understanding.

10 Q Is that a debt or an equity product?11 A No, it would be a debt product.12 Q Okay. The Equialt product was also a debt13 product as well. Correct?14 A On the houses you mean?15 Q Yes.16 A Yes, there is no Equialt, yeah.17 Q In other words, your clients weren't -- they18 were getting a promissory note or a debenture in exchange19 for their investment as opposed to actual equity shares?20 A Right. It was a note which I liked because it21 was similar to annuities. But you didn't have to wait as22 long.23 Q Okay. 24 Did you and Mr. Wassgreen ever discuss25 whether the clients that you were selling the Equialt


13 (Pages 46 to 49)

Page 46

1 investment funds to had to be accredited investors?2 A Yes, all except for 35 per fund.3 Q Tell me about what you and Mr. Wassgreen4 discussed about that to your recollection.5 A To my recollection that was it, just that6 they're only allowed 35 nonaccredited.7 Q And all the rest had to be accredited?8 A Correct.9 Q Was that what Mr. Wassgreen told you?

10 A Yes. But most of my clients are all accredited11 because they cannot come to my class unless they're worth12 two and a half million dollars or make at least 30013 thousand if they're married in income.14 Q So you believe all the clients to whom you sold15 Equialt investments were accredited investors?16 A No, there was a couple that were not. But I got17 permission before.18 Q Permission from who?19 A Barry Rybicki.20 Q Were they sophisticated investors?21 A Uh-huh.22 MR. LERNER: You have to answer verbally.23 A Yes, sorry.24 BY MR. ZAMORANO:25 Q Did you and Mr. Rybicki ever discuss how you

Page 47

1 would solicit investors for his funds?2 A He came to my classes.3 Q Mr. Rybicki did?4 A Yeah. And he liked what I was doing.5 Q Did you and Mr. Rybicki have any joint6 discussions about how to promote or market the Equialt7 funds?8 A Yes.9 Q What did you discuss?10 A To add it in my power points.11 Q Okay.12 A Just the ten percent, no company name, no13 nothing, just tied it to how -- and via the bank I teach14 people the difference between simple interest, amortized15 interest, and compound interest, and how to take advantage16 of both to become your own bank, so I would show ten17 percent simple interest.18 Q Simple interest ten percent being the braid that19 was being offered by Equialt investment funds?20 A Correct, but never a company name.21 Q Okay. 22 If you can just take me through the steps23 that or process that would occur if somebody, one of your24 clients or one of these individuals that attended your25 classes was interested in the Equialt investment fund,

Page 48

1 take me through the process that would occur.2 A From the class till that point?3 Q Yes.4 A So when I was done with the classes they were5 offered a one-hour free consultation if something hit home6 with them. 7 But they were also there to critique my class8 so they had questionnaires to fill out, how they would9 change things, you know, for their own world, so it helped

10 me make a better presentation each time.11 But at the end they were offered a free one-hour12 consultation. 13 So for those people that wanted that I14 would have 13 questions, it's a form I ask every single15 one the exact same questions pertaining to long-term care,16 pertaining to if they're in the market where they invested17 to asking them questions about their own personal18 situation, and then in the end I would say now that you19 know what I do for a living is there anything you think20 maybe I could help you with. That's how it ends.21 Q If someone expressed to you that they were22 interested in generating income would you then discuss the23 Equialt investment?24 A No, I never talked business at a one-hour free25 consultation.

Page 49

1 Q Okay. 2 Would these clients or prospective clients 3 then contact you at a later time?4 A Yeah, I give them a folder of everything they5 saw. If they came to all four days, the classes, I6 provide them with that folder of all the companies7 afterwards if they wanted to pursue something.8 Q Okay.9 A But first they had to -- let me rephrase that.

10 They first had to fill out a confidential worksheet11 because I wanted to make sure they were accredited if they12 wanted me to work with them. So if they did not fill out13 a confidential worksheet for me and bring that back I14 wouldn't go any further.15 Q And what would happen once one of these persons16 or individuals decided that they were interested in the17 Equialt products, what would happen next?18 A It would probably be the third or fourth meeting19 that I had with them, and if they needed income then I20 would show them the Equialt approach.21 Q Okay. They said they were interested in the22 Equialt approach; what would be the next step, what would23 happen next?24 A Then I would describe the risk involved in it,25 the percentage they can get, how long the contract is, the


14 (Pages 50 to 53)

Page 50

1 website so they can see the houses physically, then2 explain my story, how I did my due diligence with them3 meeting with each person individually, going to see the4 houses, and let them know that they haven't missed a check5 once, and explain that to me it's like an annuity, it's a6 note.7 And so far it's been a -- I don't like to use the8 word guarantee but they never missed a check.9 Q Okay.10 A Then I gave them three references at least to11 talk to other people to see if they were happy with the12 fund.13 Q Okay.14 A But I had these people say it was okay first, I15 just don't give out phone numbers.16 Q Okay. 17 Did you personally invest in Equialt?18 A I did.19 Q How much?20 A 244,500.21 Q Are you still an investor?22 A I am.23 Q And are you receiving monthly payments or did24 you choose the growth option?25 A There is no growth option for what I'm -- what I

Page 51

1 can offer.2 Q Okay.3 A What I do or what I could offer I should say.4 One of them is -- do you want me to describe each one how5 I do it?6 Q Yes.7 A The first one was $159 thousand. And the reason8 for this is a life insurance policy I took out on myself9 that required five years of payments of $50 thousand each

10 which would equal 250 thousand. So between Wassgreen,11 Barry, and myself we created a calculator and this is when12 I engaged Wassgreen.13 Q I'm not going to ask you questions about what14 you and Mr. Wassgreen discussed.15 A Okay. The $159 thousand, if you take that times16 ten percent over five years it's 200, it comes out to 200,17 so I would get a payment each year of 50 thousand to pay18 to the life insurance company the premium. Because the19 problem I was having with clients is they would take out20 these life insurance policies and make the first years21 payment but then they wouldn't have the 50 grand for the22 second or third year so my plan fell apart if they didn't23 have the money, so by putting the 159 in I know 5024 thousand is going to come out each year to pay their25 retirement plan, the tax free retirement plan. So that's

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1 down to 50 left that 159.2 Q Of the 159 that you invested with Equialt?3 A There is one more payment left of 50 grand, yes.4 Q And all your clients have a similar arrangement5 with Equialt?6 A No, but I do like this plan but I wanted to make7 sure they could afford doing principle and interest.8 Q Okay.9 A So they came up with this is how they can do it.10 The second one is 31,500 and that's to pay for my car, my11 truck. 12 If I recall that one is a six-year contract and it13 pays out 691.70 per month on the first of each month, and14 then the 15th the bank pulls out that amount to pay my15 truck payment.16 Q Okay. 17 So you invested the second amount of18 $31,500 with Equialt?19 A Correct.20 Q And that pays out?21 A 691.70 per month, that's principle and interest.22 Q Principle and interest?23 A Yes.24 Q Okay.25 A Again, it's another design I did in the bank

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1 class.2 Q Okay.3 A The third one is 54 thousand, my SEP.4 Q What's a SEP?5 A Self-employed IRA because they told me they were6 going to discontinue the ten percent and go to eight7 percent.8 Q When you say they who are you referring to?9 A Equialt fund Barry Rybicki. So the most I can

10 contribute to my SEP each year is 54 thousand in that year11 which I believe was two or three years ago. So I wanted12 to get that ten percent.13 Q So you invested 54 thousand with the return of14 ten percent?15 A Correct. 16 And I'm getting interest only payments17 into my SEP every single month. Which helps pay for my18 life settlement premiums. It's a design plan that I do.19 I don't sell a product, I sell a plan.20 Q Okay.21 (SEC Exhibit No. 56 was marked22 for identification.)23 BY MR. ZAMORANO:24 Q I'm going to show you what we've marked as25 Exhibit Number 56 which is document that your attorney


15 (Pages 54 to 57)

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1 provided to me this morning prior to your testimony. I2 would like for you to take look at that and tell me what3 this bonus program is that's referenced in this document.4 A As I mentioned earlier I was -- I've always been5 involved in real estate so I liked the program, I liked6 what they were doing, I was curious how they could make so7 much money in this business, and so I asked to be part of8 the company, if there was a way that possibly whether it's9 employment or a partner or anything and they said they10 don't really have a position for me but they could come up11 with some kind of future program to keep me working with12 them so they came up with this bonus plan.13 Q So first you've never been employed by Equialt14 or the funds?15 A No.16 Q As an employee or an as an independent17 contractor?18 A No.19 Q Instead they came up with this bonus program in20 lieu of you becoming an actual employee of the company?21 A Yeah. On top of the marketing plan, this is on22 top of the marketing.23 Q Okay. 24 What does this bonus program provide in25 general terms?

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1 A It was supposed to be if I hit certain levels2 that I would get a bonus at the end of the three-year3 contract of whatever sales I did that year paid out three4 years later at a 15 percent rate or possibly a free house5 if they didn't have the funds or a portion of a piece of6 real estate.7 Q Okay. 8 And have you received any bonuses or9 compensation pursuant to the funds?10 A Zero.11 Q Okay. Were your clients ever offered the growth12 option in lieu of monthly interest payments?13 A No.14 Q Was that an option that was available to you?15 A No.16 Q So the only investment option that was available17 to them was ten percent?18 A Ten percent simple interest.19 Q Simple interest per annum paid monthly?20 A Yes. Not just monthly, the life insurance is21 once a year.22 Q Okay. 23 If there was an issue concerning payment24 of the monthly interest -- well, first of all, has there25 been any problems regarding the payment of monthly

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1 interest?2 A Never.3 Q If there were problems concerning account4 discrepancies with respect to the self-directed IRA and5 the account, Equialt investment funds, would you and your6 assistant assist in trying to resolve those problems on7 behalf of your clients?8 A Yeah.9 Q Did that happen on occasion?

10 A Where it happened was the CPA firm that they11 hired, always thought everything was interest only, so we12 would -- they would send out -- it's not a 1099, what's13 the bank interest?14 Q Not sure but there's some tax form.15 A Taxable plan but they would include the16 principle so I would catch that and say no, this was17 principle and interest payments monthly or annually so18 they would change the -- we'll just call it the 1099 since19 I can't remember the number, they would change that so20 they were always good about that.21 Q Okay.22 A I keep track of all my clients.23 Q You keep track of all your clients investments24 in Equialt?25 A Yes, very detailed.

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1 Q What do you do with respect to that?2 A I keep an Excel spreadsheet.3 Q What does that Excel spreadsheet show?4 A Shows their name, the date of investment, the5 dollar amount, the percentage they're getting, and when6 the contract is up.7 Q Did Equialt fund, the funds, Equialt funds8 provide you with any quarterly updates?9 A Statements?

10 Q Quarterly updates.11 A Newsletter.12 Q Like a newsletter.13 A Newsletter.14 Q On a quarterly basis?15 A I believe they do it every quarter.16 Q Okay. And do your clients receive those17 quarterly updates or do you provide it to them?18 A I mainly provide it to them I believe.19 Q Okay.20 A I don't think they mail it out to everybody.21 Q Mr. Tenhulzen, I don't have any additional22 questions for you today. Is there anything you would like23 to add or clarify or amend to the record or to your24 testimony?25 A Yeah, give me a minute.


16 (Pages 58 to 61)

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1 MR. ZAMORANO: We'll go off the record at2 11:35.3 (Whereupon, a recess was had.)4 MR. ZAMORANO: Back on the record.5 BY MR. ZAMORANO:6 Q One additional question before you respond.7 During the time that you were discussing the possibility8 of employment with the Equialt funds did Mr. Rybicki or9 Mr. Davison share any information concerning their10 internal operations, finances, accounting profits,11 anything of that nature?12 A No. I asked for them but no.13 MR. LERNER: You asked for financial 14 statements?15 THE WITNESS: Yeah. I had some clients that16 asked for them.17 BY MR. ZAMORANO:18 Q And did they ever provide any financial19 statements --20 A No.21 Q -- to you or to your clients?22 A No.23 MR. LERNER: Did they tell you why they24 wouldn't give it to you?25 THE WITNESS: They don't have to.

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1 MR. LERNER: That's what they said, they don't2 have to?3 THE WITNESS: Yeah.4 MR. ZAMORANO: That was my last question.5 Is there something you would like to add?6 MR. LERNER: No, we have nothing to add. Thank7 you.8 MR. ZAMORANO: Do you have any clarifying9 questions?

10 MR. LERNER: Nothing to clarify, nothing to11 add, we're fine. We appreciate the courtesy that you12 provided us.13 MR. ZAMORANO: Off the record.14 (Whereupon, at 11:45 a.m., the examination was15 concluded.)16 * * * * *17

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1 PROOFREADER'S CERTIFICATE2

3 In the Matter of: CERTAIN UNREGISTERED SECURITIES4 Witness: Dale Tenhulzen5 File No: FL-04167-A6 Date: Friday, December 20, 20197 Location: Miami, Florida8

9 This is to certify that I, Christine Boyce,10 (the undersigned) do hereby certify that the foregoing11 transcript is a complete, true and accurate transcription12 of all matters contained on the recorded proceedings of13 the investigative testimony.14

15

16 ____________________________ _____________________17 (Proofreader's Name) (Date)18

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1 UNITED STATES SECURITIES AND EXCHANGE

2 REPORTER'S CERTIFICATE

3

4 I, MICHELLE R PAYNE, Reporter, hereby certify that

5 the foregoing transcript (December 20, 2019)

6 is a complete, true, and accurate transcript of the

7 testimony indicated held on December 20, 2019 at 10:00

8 a m in the matter of: CERTAIN UNREGISTERED SECURITIES

9 I further certify that this proceeding was recorded

10 by me, and that the foregoing transcript was prepared

11 under my direction

12 Date: December 28, 2019

13 Official Reporter: Michelle R Payne

14 Diversified Reporting Services, Inc

15 ____________________________

16 MICHELLE PAYNE, Court Reporter

17

18 Notary Public-State of Florida

19 Commission No GG137749

20 Expires: September 28, 2021

21 Transmittal Number: M000053

22

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2:18


EXHIBIT 3





EXHIBIT 4


UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISJ[ON

CIVIL ACTION NO. 8:20-cv-325-T-35AEP

SECURITIES AND EXCHANGE COMMISSION, ) )

Plaintiff, ) )

~ ) )

BRIAN DAVISON, ) BARRY M. RYBICKI, ) EQUIALT LLC, ) EQUIALT FUND, LLC, ) EQUIALT FUND II, LLC, ) EQUIALT FUND III, LLC, ) EA SIP, LLC, )

) Defundan~,and )

) 128 E. DA VIS BL VD, LLC, ) 310 78TH A VE, LLC, ) 551 3D A VE S, LLC, ) 604 WEST AZEELE, LLC, ) 2101 W. CYPRESS, LLC, ) 2112 W. KENNEDY BL VD, LLC, ) 5123 E. BROADWAY A VE, LLC, ) BLUE WATERS TI, LLC, ) BNAZ,LLC, ) BR SUPPORT SERVICES, LLC, ) BUNGALOWS TI, LLC, ) CAPRI HA VEN, LLC, ) EANY,LLC, ) EQUIALT 519 3RD A VE S., LLC, ) MCDONALD REVOCABLE LIVING TRUST, ) SIL VER SANDS TI, LLC, ) TB OLDEST HOUSE EST. 1842, LLC, )

) Relief Defendants. )

AFFIDAVIT OF JOHN FR][EDRICHSEN


STATE opC,f\-L\foR>J\t\ §

Cof-.ff/<J+- CO~ COUNTY § '·A5pA./ . . µ ~~\(J)fl..l,0

Before me, the undersigned authority, personally appeare

duly sworn, deposed as follows:

D t\" , who being by me

1. My name is John Friedrichsen. I am over 18 years of age, of sound mind, capable

of making this affidavit, and am personally acquainted with the facts stated herein.

2. I currently live in California.

3. I was employed as a sales agent for EquiAlt from February 2016 to February

2020.

4. I first met Barry Rybicki in February 2016 when I was seeking employment at

EquiAlt as a sales agent.

5. At that time, Barry and I spoke about EquiAlt, the Funds, and the opportunity to

sell debentures to investors.

6. As part of our discussions, I asked Barry if a license was necessary to sell the

debentures.

7. Barry informed me that sales agents did not need a license to sell debentures for

the EquiAlt Funds.

8. Barry explained that he had spoken to Paul Wassgren, the attorney for EquiAlt,

who advised Barry that sales agents did not need to be licensed to sell notes for the EquiAlt

Funds.

9. In 2018, EquiAlt created another fund called the REIT.

10. When this fund was created, I had a conference call with Wassgren and Rybicki

to discuss the proper protocol for the sale of debentures for the REIT Fund .


11. Wassgren knew I was a sales agent for the EquiAlt Funds and agreed to provide

direction regarding requirements for the new REIT Fund.

12. The primary topic of the conversation was whether a Series 7 license was

necessary to sell the REIT Fund, as many of the agents did not have one at the time.

13. Wassgren explained that financial agents needed to acquire a Series 7 license to

sell debentures for the REIT Fund. I understood him to mean that a Series 7 license was

necessary to sell the REIT Fund, but not the other EquiAlt Funds.

14. In either late January or early February 2020, Barry called me.

15. In that phone call, Barry informed me that he had just learned from another

attorney that sales agents needed a Series 7 license to sell debentures for the EquiAlt Funds.

Barry was upset and felt that he had been misled by Wassgren.

16. Barry then directed me to stop selling debentures for the EquiAlt Funds

immediately.

(Jµ-cy:~ -{Jame of Affiant)

Sworn to and subscribed before on the ___ day of _______ _

A notary publi c or other officer completing this certi fi catc veri ties only the idcnlity of the individual who signed the document to which th is cert ilicatc is attached, and not the tru!hfulness, accuracy, or val id ity of that document.

[SEAL]

State orrv,lifornia Coup~ of'

Urn' C( 1/4-r?V Subscribed and sworn to )pr affirmed)

before me on t1!!s ? O day of .lu ('{_ ,20 Z 0 . by \7ohn /:T1ec( c1'c ta .r-en _,

proved to me on the basis of satisfactory evidence

Notary P~lic (printed name)

My Commission expires: ____ _

llffllllll!_l,.._HHftlllQlll-""'!Hi IAN M. DUNCAN COMM. #2275906 I

. Notary Public • California 5 · Al meda County~ ..

My Comm. Expires Feb. 22, 2023 Jluttttllll~l"*"lffHUllHlllllPIHlll

to be the person(s) who appeared before me ..

Signature Lat{ { ( ~~ (Seal)


EXHIBIT 5


From: Bertram [email protected]: Re: Stephanie Janucik / Blue WatersDate: March 21, 2017 at 12:24 PMTo: Barry Rybicki [email protected]

727-300-9004

Sent from my iPhone

On Mar 21, 2017, at 1:16 PM, Barry Rybicki <[email protected]> wrote:

Thank you and what is your cell number?

Cordially,

<PastedGraphic-1.png>

On Mar 21, 2017, at 8:26 AM, Bertram <[email protected]> wrote:

Hi Barry,

Just give me a call at anytime and I will be able to take the deposit Thank you Bertram

Sent from my iPhone

On Mar 21, 2017, at 11:20 AM, Barry Rybicki <[email protected]> wrote:

Hey Bertram,

My Cousin booked a room for August over at Blue Waters and I forgot to contact you on this so that the charges would be billedto my credit card. She just had $243.30 charged to it and I want to take care of this for her asap. Can you help me on this or isTony taking care of Blue Waters? I will get you or Tony my credit card right away so just let me know.

Thank you!

Cordially,

<PastedGraphic-1.png>









From: Accounting [email protected]: FedEx BillDate: February 15, 2017 at 3:28 PMTo: Barry M Rybicki [email protected]

Barry: I’m sorry I forgot to send you this bill a couple of weeks ago. It is for the last overnight FedEx. Ican get the details if you need them I can’t remember the name of the client that this is for but ifyou want me to I can research it.Let me know, thanks! Ivonne Hernandez GMCO – EquiAlt Accounting1291 Galleria Drive, Suite 200Henderson, NV 89014Telephone: (702) 650-4466Fax: (702) 650-9830Email: [email protected]

Barry M. Rybicki 14026…017.pdf

6 KB



Date: July 25, 2019 at 11:34:15 AM MSTTo: "Barry Rybicki" <[email protected]>

Thank you Sir!!

<image001.jpg>

--------- Original Message ---------Subject: Fwd: Your Blue Waters TI, LLC receipt [#1571-8999]From: "Barry Rybicki" <[email protected]>Date: 7/25/19 2:30 pmTo: "Bertram" <[email protected]>

Cordially,

<image002.png>

Begin forwarded message:

From: "Blue Waters TI, LLC"<[email protected]>Subject: Your Blue Waters TI, LLC receipt[#1571-8999]Date: July 25, 2019 at 6:33:45 AM MSTTo: [email protected]: "Blue Waters TI, LLC"<[email protected]>

<image003.jpg> <image004.jpg><image003.jpg>

Receipt from Blue Waters TI, LLCReceipt #1571-8999

Begin forwarded message:

From: <[email protected]>Subject: RE: Fwd: Your Blue Waters TI, LLC receipt [#1571-8999]








x-msg://6/

http://bluewaters.thego.agency/

x-msg://6/

AMOUNT PAID$13,061.92

DATE PAIDJuly 25, 2019

PAYMENT METHOD<image005.jpg>– 7965

SUMMARY

GLVS-021017-1 $13,061.92

Amount paid $13,061.92

If you have any questions, contact usat [email protected] or call at +1 813-252-5112.

Something wrong with the email? View it in your browser.

You're receiving this email because you made a purchase at Blue WatersTI, LLC, which partners with Stripe to provide invoicing and paymentsprocessing.



tel:813-252-5112

https://dashboard.stripe.com/emails/receipts/pmtrc_1F074mErLfDanYesD8uv2kL9



https://stripe.com/

EXHIBIT 6





EXHIBIT 7




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